Frank Giustra's Case For Gold

Given Forbes' own inclinations, it may be surprising to see it webbing a bullish case for gold fram a man well ensconced in the goldbug circuit. This particular man, though, is Frank Giustra - a venture capitalist by trade and the founder of the company that became Goldcorp. His business record evidently led Forbes' editors to graciously make an exception in his case.

Giustra's own case hinges upon policy reflation, which is likely to result in a more serious case of inflation down the road given how bad the damage was. [One of the causes of the Fed permiting double-digit inflation in the late 1970s was the fragility of the U.S. economy after the 1973-75 gutting. High inflation was seen as an assumable cost to keep the economy from imploding outright. I note, somewhat puckishly, that there was a lot of excess capacity back then too.]

Veteran goldbugs will find many familiar themes in his case for gold as an investment, but there's one possibility he raises that not many out of the hard core have considered:

I predict that both the U.S. and Japan will eventually have to coerce their central banks into becoming buyers of last resort for their own sovereign debt, meaning they will have to print money. This will serve the dual purpose of keeping rates low to keep their fragile economies above water and maintaining their sovereign debt service at manageable levels.

That's a brass-tacks conclusion. Those who dismiss the threat of inflation on the grounds of Federal Reserve rectitude forget, understandably, that the Fed is ultimately a creature of Congress. I note as a point of reflection that not all of Ron Paul's co-sponsors for his audit-the-Fed bill have signed on because they're impressed with Dr. Paul's arguments or like the idea of Fed transparency.