"Shepherds" of Major Currencies Don’t Get Lost Confidence in Paper Money

“It’s gold that puzzles the current Fed chief,” says a commentary piece by William Pesek today. It’s not just Bernanke either. Articles have been consistently cropping up since Bernanke’s statement of confusion about gold, like this one from the WSJ, written by authors who don’t seem to quite understand gold’s value outside of being an inflation hedge.

Here’s a perspective from Bloomberg:

“’I don’t fully understand movements in the gold price,’ Bernanke said on Capitol Hill last week. That shocks gold bulls like Johann Santer, managing director at Superfund Financial in Tokyo. And it may be awful news for the global economy that some investors are surer than ever that the gold rally is just getting started.

“It’s hard to decide what’s more frightening: that investors are losing confidence in paper money or that the shepherds of the world’s major currencies don’t get what’s going on. Gold’s climb of almost 30 percent in a year reflects fear, not just market concern over inflation or deflation risks. People have lost trust in the global financial system…

“…There are many reasons why gold is back in vogue, yet two in particular are worth considering. One is fear about “black swans,” unexpected events that have great impact. The second reflects how little gold many central banks in Asia and elsewhere hold on their balance sheets.”

Above, Pesek points out two reasons why gold makes sense to him as an investment outside of inflation. Although, of course, there are scads more reasons that can be detailed, depending on whom you ask. Strange, though, that Bernanke finds it worthwhile to publicly speculate against the increasing value of gold. It’ll be interesting to see what he says next if gold continues to rally higher.

You can read more of Pesek’s detailed criticism in his Bloomberg commentary on Gold’s surge puzzling Bernanke.


Rocky Vega,
The Daily Reckoning

The Daily Reckoning