Alan Greenspan renews gold advocacy, Part 2

“Do something. Help!”

Gold Investor/World Gold Council/2-16-2017

Alan Greenspan, as quoted in the World Gold Council’s interview linked above:

Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver.

No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

(Pictured below. Lydia gold stater, King Croesus, 561-541 BC, electrum blend silver and gold, ‘heavy’ stater specimens bring upwards of $30,000 in top grades. This specimen is from the British Museum collection and reproduced here with permission.)

MK note:  Gold is not like other assets that depend upon another individual or institution’s performance for value.  It  stands alone and as Greenspan states without mincing words:  “No one questions it value.”  It is for those reasons that gold protects wealth no matter the economic malady visited upon the economy – inflation, hyperinflation, disinflation, stagflation, runaway stagflation and deflation.  It is the ultimate armchair investment – the one asset you can rely upon no matter what happens politically or economically.

Greenspan believes stagflation is in our collective futures and he has made that prediction publicly on several occasions over the past few months.  Here is what he said in the same interview linked above:

As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!

At the same time, the risk of inflation is beginning to rise. In the United States, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally. Demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures. To date, wage increases have largely been absorbed by employers, but, if costs are moving up, prices ultimately have to follow suit. If you impose inflation on stagnation, you get stagflation.

Our mission at USAGOLD is not to take sides politically and, anyone who has frequented these pages over the years will attest to the fact that we tend to shy away from partisan politics. What we do concern ourselves with, however, is the manner in which the policies pursued by politicians and central bankers might affect the investment portfolio.  You might say that our business is the preservation of wealth. Alan Greenspan clearly sees gold and silver as  means to that end.  At the moment the political tide is running in the direction of inflation and inflationary expectations have taken hold of the investment markets, gold included.  The “inflation trade” has played large in gold’s price appreciation thus far this year, and as I mentioned in an earlier post, professional money managers are leading the charge through their purchases in gold ETFs.

Investors last tangled with stagflation in the the decade of the 1970s, and we all know how gold performed during that period.  For the record, here is a chart that shows how gold performed superimposed over the purchasing power of the dollar.  As you can see, while the dollar declined by 85%, gold rose by 17-times.  It tells at a glance the value of diversifying with gold and goes to the heart of the point Dr. Greenspan is making. (The Dow Jones Industrial Average over the same period gained only about 16%.)

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