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Gold In A 'Sweet Spot' As Central Banks Pursue Aggressive Easing

By Neils Christensen Kitco News
Monday February 2, 2014 12:42 PM

(Kitco News) -Globally, central banks are aggressively pursuing inflationary monetary policies while weakening their currency to promote more economic growth, and one European fund manager sees or said he sees this as the perfect environment for gold.

“With central banks all over the globe, especially in Europe, being eager to fight deflation and to do whatever it takes to create inflation, I think, gold is in a sweet spot,” said Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report.

Ronald-Peter Stoeferle, fund manager at Incrementum AG
Gold prices took a hit on Thursday as markets interpreted the latest Federal Reserve monetary policy statement as hawkish, but Stoeferle said that it is only a matter of time before the U.S. central bank joins the rest of the world and loosens monetary policies further.

One of the reasons Stoeferle said he is not expecting the Fed to raise interest rates is because of the strong U.S economy, relative to other nations. Not only is the government able to import cheaper goods but it also imports deflation.

“Disinflation fears are starting to rise in the U.S., so the Fed will not want to raise interest rates this year,” he said. “I would bet a few ounces of gold on that.”

In the Fed statement Wednesday, the central bank acknowledged falling inflation pressures, saying they are expecting to see further declines in the near term; however, it dismissed the fears of deflation, saying “…the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.”

Although the Fed is on the sidelines for now, Stoeferle said that there is a paradigm shift in Europe after the European Central Bank (ECB) President Mario Draghi “over-delivered” at the January monetary policy meeting and introduced a €60 billion monthly asset-purchase program.

Unlike the Fed, the ECB is trying to import inflation, by weakening its currency, which Stoeferle said will eventually backfire in the long-term. He added that countries around the world are pursuing the same policies and when the dust settles, gold will be the best investment.

“Gold in euro terms is up 11%; gold in yen terms is at all-time highs; just look at gold against the ruble. This is happening all over the world,” he said. “We are in the midst of a monetary policy experiment and gold is a decent hedge.”

Even the Swiss National Bank (SNB) has an inflated balance sheet problem as it accelerated money printing to weaken its currency against the euro. The central bank was finally forced to give up its currency peg, surprising markets and creating extreme volatility earlier this month.

“The quality of the balance sheet of the Swiss National Bank deteriorated enormously,” he said. “About 80% of the country’s GDP is the balance sheet of the central bank, which is three-times higher than the U.S.”

But it’s not just central bank spending that has Stoeferle optimistic on gold prices. Geopolitcal concerns, especially in Greece, are going to create a lot of market uncertainty, making the yellow metal attractive as a safe-haven investment.

“Greece is not a systemic threat but we are seeing the exact same political dynamic in Spain and Italy now,” he said.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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