Gold

I recently received the following comment on my post china-implores-its-citizens-to-buy-gold: "Couldn't disagree more with your gold position. The west is going through a long deleveraging process, and this will have a deflationary bias."

Lets jump right into that comment:

First, I wholeheartedly agree with you that the US will be going through an arduous deleveraging period: easy credit and low interest rates created an untenable situation which will slowly be unwound (A great book on this is "The Age of Deleveraging," by Gary Shilling).

That said, it is not inflation or deflation that is driving the price of gold. The price of Gold is being driven higher by unabashed currency depreciation. The central banks around the world have been scrambling to fill the void in consumer demand (employee demand/housing demand/bond demand) , by printing dollars, and every new dollar printed, is one further step fiat money is taking towards oblivion. Whether or not these dollars succeed in combating deflation, at this time, is besides the point (in many cases the excesses were just too great).

So long as central banks continue to monetize debt, and leave interest rates low, the price of gold will rise. In other words so long as Ben Bernanke has free control of the Federal Reserve there is no ceiling to the price of gold.