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Gold is a Great Deflation Hedge Tooby Peter A. Grant
Apr 23, AM 
Gold has come under selling pressure as rising global growth concerns pressure commodities and push the dollar higher. The yellow metal has slipped back toward $1400, but remains confined to yesterday's trading range.Weaker than expected PMI prints out of China, Europe and the U.S. have all heightened concerns that key global economies are slowing once again. This has added additional pressure to already soft commodities markets. While gold is more money than commodity in most investors' minds, the yellow metal is a component in the vast majority of commodity funds. Investors selling commodity funds are invariably selling gold as well, even though that might not be their intent. Slowing economic activity will create additional deflationary pressures, which have already been mounting, and which will likely lead to additional central bank easing. The BoJ is already throwing everything and the kitchen sink at their deflation problem, while there is a growing expectation that the ECB will cut rates in May or June amid deteriorating growth prospects. German chancellor Merkel said yesterday that members of the eurozone needed to be prepared to cede sovereignty. 'To Germany' was the unspoken tag line to those comments. Nonetheless, at least Spanish PM Rajoy seems to be on board, saying that giving up sovereignty to the bloc (which of course is dominated by Germany) is crucial to secure the future. Rajoy also warned that the European economy is going to be worse than forecast this year. The ECB is already predicting -0.5% GDP this year and -0.9% next year. With unemployment already at record highs in some eurozone countries and the growth outlook deteriorating, things in the EU may be about to get really dicey indeed. And a 25 bp rate cut is probably not going to turn that around. Some investors in paper gold, that bought primarily as an inflation hedge, may be jumping ship as deflation appears to be the more pronounced risk at this point. However, physical gold owners are very aware that the yellow metal is an effective hedge against all the "ations," including deflation. This is evidenced by gold stellar performance during the Great Depression, as well as the more recent Great Recession. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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