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Monday, December 23, 2013

It's wrong for gold-watchers to focus on US inflation


Mining.com - Sharps Pixley guy says it's wrong to focus on US inflation for understanding the gold price. He has a point:
Norman said while long-term inflation is an important driver for the gold price, it is wrong to focus just on US inflation, which is sitting near decade lows of 1.2%:

"Before the financial crisis India and China accounted for 46% of global demand for gold. Today its is over 80%. It is the inflation in those demand centres that really matter. Attempt to stimulate economies in the West often lead to inflation in those countries, where much of the goods bought in the West is manufactured. India's inflation is running at 7.5% and China's at close to 3.5%, and demand from these economies will continue grow in future."
Sure he's from a bullion dealer, so he's conflicted on the topic. Still, true gold consumption (buying a commodity and turning it into an asset class) is occurring in India and China, not in the USA; so if you are one of those fossils who believes in "gold as an inflation hedge", you better get your "where is the inflation" bit right.

And also, he notes the US/EU/UK are exporting inflation to the developing world right now.

Gold has nothing to do with America. It hasn't since Nixon ended convertibility. Deal with it.

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