Gold drifts lower in sluggish, taper-driven trading
Poland central bank governor speaks out on gold’s value as ‘the ultimate strategic hedge’

(USAGOLD – 10/6/2021) – Gold drifted lower in the same sluggish, taper-driven trading environment gripping the rest of the financial markets and the global economy. Stagflation is in the air, and the markets are attempting to sort out how to deal with it. Gold is down $2.50 this morning at $1759. Silver is down 24¢ at $22.48. On occasion, we have remarked that the same attributes that make gold a reliable store of value for central banks also apply to private investors. Adam Glapinski, the head of Poland’s central bank, elaborates on those virtues in a the World Gold Council report issued this week titled A Central Banker’s Guide to Gold as a Reserve Asset.

“Gold is devoid of credit risk,” he writes. “It is not easily ‘debased’ by monetary or fiscal mismanagement of any country, and while its overall supply is scarce, its physical features ensure durability and virtual indestructibility. True, gold offers little by way of income and its price tends to fluctuate quite a bit, but it is perhaps the simplest, easiest and most efficient expression of a strategy that involves what Warren Buffet astutely called ‘going long on fear.’ What this means is that gold is not an asset bought because of its industrial uses or income-generation appeal – rather it is an ultimate strategic hedge whose value usually grows in circumstances of increased risk of financial or political crises or turbulences, i.e. precisely at times when the central bank might need its reserves most. And, yes, physical gold may seem ‘barbaric’ by today’s standards of digital currencies, blockchain technology and cashless payments, but – to put it bluntly – an ounce of gold will still be an ounce of gold should lights rather unfortunately go out.”

Chart of the Day

overlay chart showing gold and M1 money supply 1971 to present log scale

Sources: St. Louis Federal Reserve, Federal Reserve Board of Governors, ICE Benchmark Administration
Click to enlarge

Chart note: With inflationary concerns moving to the forefront, a handful of analysts have made strained attempts to show that gold is not truly an inflation hedge – an endeavor that generally requires the manipulation of timelines and statistics to make the point. The chart above is drawn to log scale and, as a result, provides a more accurate representation of monetary growth (inflation) and its relationship to the gold price. As you can see, monetary growth spiked in 2021 – an event to which gold has not yet reacted.

 

 

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