Gold prices are soaring because of growing inflation fears--both the European Central Bank and the Federal Reserve seem to be on the path to permanently easy money with the Greek bailout and huge U.S. budget deficits.
Neither the reforms attached to the Greek bailout nor banking legislation in Congress get at the structural problems that caused failures in Athens and on Wall Street.
Soft reform is no reform--investors are fearful too much money will undermine the value of euro bonds and U.S. Treasuries--even if those bonds don't outright default....
[L]arge deficits and more bailouts are likely over the next decade, and that will ultimately drive up interest rates on long U.S. bonds, and drive down, five years from now, the prices of 20- and 30-year Treasuries purchased today.
Overall, neither euro denominated assets nor U.S. Treasuries are a good investment in such a potentially explosive inflationary environment.
Investors, fearing the worst, are hedging by putting more of their portfolios into gold, and the price of gold rises.
Monday, May 17, 2010
Peter Morici Explains Gold's Rise
I'm not the only one who's written about gold at Enter Stage Right. Prof. Peter Morici has penned an explanation of why gold has risen, with themes that'll ring familiar to any goldbug: