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Why Inflation Won't Spike Gold


Assuming so leapfrogs the more likely catalyst.


Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

As a card carrying member of the 'Ville inflationistas party, I'd offer a couple of thoughts on Professor Katsenelson buzz posted yesterday; thoughts by the way, that I've already shared with him multiple times during our regular chats:

  • First, my sense is that looking to inflation as a catalyst for a spike in gold leapfrogs the more likely and first-to-appear catalyst, which is a rapid/unruly devaluation of the dollar. Inflation will be a likely consequence of the latter, but by that time, the gold run will likely be over.

  • While the growth in US Money Supply (M2) has slowed down of late, its growth has still been rather staggering, particularly if one considers the complete lack of velocity in the growth of money.

  • Lastly -- and a thesis based more on gut feeling and my read of how Europeans think than quantitative analysis -- is that on the heels of the Great Depression in the US and Weimar Germany in Europe, the DNA of the respective central banks is grounded in "inflating" here and "avoiding inflation at all costs" over there. To wit: I'd offer the truly paltry performance of M2 in the ECB countries, which have been very reticent to print and spend, even at the depth of the recent financial crisis.

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