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When Federal Reserve Board Chairman Alan Greenspan
steps down in January and Appointee Ben Bernanke steps up
to the plate, how will gold fare? According to a number of
industry pundits, Bernanke may not be good for the overall
economy, but he’s definitely good news for gold.
“His appointment is the best one that
we friends of gold could ask for,” says James Turk,
who noted that gold started climbing right after the Bernanke
announcement.
Adrian Day, author of Adrian Day’s Global
Analyst, says the nomination of “Helicopter Bernanke”
is viewed abroad as “a dangerous or reckless appointment”
However, Day counts the nomination among the strong fundamentals
for gold. “This can only be good for gold,” says
Day.
By the time Bernanke joins the Fed, the U.S.
economy may be slowing down, according to Richard Russell,
author of Dow Theory Letters. However, at the same time, inflation
may be heating up. “By the end of January when Bernanke
takes over, short rates could be at 4.5%. Bernanke, who comes
in as an ‘inflation hawk’ will have to decide
whether to put the squeeze on inflation or to keep the economy
shimmering.” Can you do both simultaneously, asks Russell?
“Guess we’ll find out.”
If consumers are to be enticed out of gold and
other tangible assets in favor of dollars, interest rates
would have to be raised drastically higher, says Turk –
high enough to beat the pace of inflation. Greenspan has been
raising rates slowly in an attempt to convince everyone that
he is saving the dollar – when in fact, the slow, incremental
hikes aren’t enough to do the trick. Turk and others
believe Bernanke will follow suit.
”Bernanke will attempt to lessen the burden
arising from the growing mountain of debt in this country
as well as to maintain the illusion that the economy is on
solid footing,” says Turk. “This action will build
the growing pool of liquidity, which in reality is excess
dollars.”
For now, Russell advocates a defensive posture.
“With short rates finally becoming attractive, it’s
time to move into short government paper while continuing
to accumulate gold,” he says. Why gold? “I accumulate
gold because as the economy slows down, the specter of deflation
or ‘dangerously low inflation’ comes to the fore.
. . . Somewhere ahead, U.S. consumers are going to cut back
on their buying and foreign exporters will start to worry.
At that point, world competition for sales will intensify,
and we will probably see global competitive devaluations.”
When that happens, says Russell, “it
will require more and more paper to buy real, safe, honest-to-God
money – gold.” (November 3, 2005)
*****
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