An ATM That Dispense Gold

While I have been advocating gold for some time and continue to believe it represents an appropriate hedge in one’s portfolio, pictures like the one below suggest we could be setting the stage for a massive bubble. As frightened Europeans turn their rapidly depreciating euros into hard assets, we will likely see continued upward pressure on the price of gold.

Though it feels good to be riding the wave, at some point central banks will be forced to stop speculative runs on their currency. Though I believe we are months and perhaps years away from such a situation playing out, investors chasing the rally in the yellow metal ought to pay close attention to the commentary emanating from the world’s major central banks. With pledges to keep interest rates at zero, endless guarantees afforded to private sector banks, and incessant money printing, central banks are clearly communicating a message that forestalling a deflationary debt unwind remains priority number one. As such, investors are acting perfectly rationally by selling currencies and buying gold.

However, I am under no illusion that buying gold is a one way bet. Personally, I think we breach the previous inflation adjusted gold price of $2200/ton before central banks feel compelled to defend their currencies (particularly the United States). Again, that day may be some ways off, but at some point inflationary forces building in the economy will force the hands of the supposed protectors of fiat currency.