As George Bernard Shaw said, “You have to choose between the natural stability of Gold and the natural stability of the honesty and intelligence of the members of the Government.” He continues, “And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
Indeed, in the view of many, the prospects (excuse the pun) for gold even after falling into bearish territory last month, continues to be bullish. This is because of a unrelenting resolve by central banks, in an attempt to stimulate growth, persist in a policy of money printing that weakens their currency.
The problem with fiat money is not inherent in paper money but rather in the weakness and fallibility of those who administer the program. That is the reason no fiat currency has withstood the test of time. The politicians can not be trusted, or rather they can be trusted to do the wrong thing over and over again over a long period of time.
“I continue to be bullish gold for the longer term,” a fund manager for Threadneedle Investments, David Donora commented in an e-mail interview. “The recent break in prices does not change that view. The key factor that continues to support that view is the active role that central banks are taking to weaken their currencies by printing money.”
In an article for the New York Times, Paul Krugman warns that there is not enough inflation for the U.S. economy. While overseas, the Bank of England exhibits “a worrying lack of appetite for trying to get a decent economic recovery going,” bemoans Vicky Redwood of Capital Economics. Chancellor George Osborne, of the United Kingdom, prefers more “monetary activism” as well.
The bottom line is that quantitative easing and zero interest rates have not performed as advertised and in spite of “green shoots” and “summers of recovery,” we still seem to be bumping along. The least shock sends us into a tail spin with cascading affects.
The philosopher Voltaire may have said it best, “Paper money eventually returns to its intrinsic value, zero.” That is not the case with gold.