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Bernanke: Good for Gold?

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0 Comments|November 8, 2005

When Federal Reserve Board Chairman Alan Greenspan steps down in January and Appointee Ben Bernanke steps up to the plate, how will gold fare?

Source: The Gold Report 06/06/2005( -->

When Federal Reserve Board Chairman Alan Greenspan steps down in January and Appointee Ben Bernanke steps up to the plate, how will gold fare? According to a number of industry pundits, Bernanke may not be good for the overall economy, but he’s definitely good news for gold.

“His appointment is the best one that we friends of gold could ask for,” says James Turk, who noted that gold started climbing right after the Bernanke announcement.

Adrian Day, author of Adrian Day’s Global Analyst, says the nomination of “Helicopter Bernanke” is viewed abroad as “a dangerous or reckless appointment” However, Day counts the nomination among the strong fundamentals for gold. “This can only be good for gold,” says Day.

By the time Bernanke joins the Fed, the U.S. economy may be slowing down, according to Richard Russell, author of Dow Theory Letters. However, at the same time, inflation may be heating up. “By the end of January when Bernanke takes over, short rates could be at 4.5%. Bernanke, who comes in as an ‘inflation hawk’ will have to decide whether to put the squeeze on inflation or to keep the economy shimmering.” Can you do both simultaneously, asks Russell? “Guess we’ll find out.”

If consumers are to be enticed out of gold and other tangible assets in favor of dollars, interest rates would have to be raised drastically higher, says Turk – high enough to beat the pace of inflation. Greenspan has been raising rates slowly in an attempt to convince everyone that he is saving the dollar – when in fact, the slow, incremental hikes aren’t enough to do the trick. Turk and others believe Bernanke will follow suit.

“Bernanke will attempt to lessen the burden arising from the growing mountain of debt in this country as well as to maintain the illusion that the economy is on solid footing,” says Turk. “This action will build the growing pool of liquidity, which in reality is excess dollars.”

For now, Russell advocates a defensive posture. “With short rates finally becoming attractive, it’s time to move into short government paper while continuing to accumulate gold,” he says. Why gold? “I accumulate gold because as the economy slows down, the specter of deflation or ‘dangerously low inflation’ comes to the fore. . . . Somewhere ahead, U.S. consumers are going to cut back on their buying and foreign exporters will start to worry. At that point, world competition for sales will intensify, and we will probably see global competitive devaluations.”

When that happens, says Russell, “it will require more and more paper to buy real, safe, honest-to-God money – gold.”

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The GOLD Report is Copyright © 2005 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. Streetwise Inc. does not guarantee the accuracy or thoroughness of the information reported.


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