Ambrose Evans-Pritchard reports: "The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has "restated" its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.
It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.
Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction.
Albert Edwards from Societe Generale says the Atlantic region is one accident away from outright deflation - that 9th Circle of Hell, "abandon all hope, ye who enter" . Such an accident may be coming..."
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Comment: Indeed, dear Ambrose, deflation would be the natural way of the economy to move to. It would punish, and rightly so, greedy debtors and lenders, and indeed put them into the 9th Circle of Hell. But nowadays we have a treacherous savior at hand: governments and central banks. They will do all they can to avoid deflation. In fact, they will try that hard that in the end they most likely will not only bring about moderate or sutbstantial inflation, as they want to, but hyperinflation, and it is really hyperinflation which the devil dearly wants, because in times of hyperinflation all morality gets lost and people lose their minds.
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