The calm before the storm

The calm before the storm

Deflation paves the way for inflationary policies

As argued by Ronald Stoerferle, in his latest ‘In gold we trust’ report, the risks of deflation in the world economy are, in fact, increasing. Whether we are heading for further inflation or in fact deflation seems to be the multi-million dollar question at present. But policy makers are so paranoid as to the effects of deflation that they are almost predestined to implement further stimulus packages.
Whilst many believe that deflation spells the end of gold’s bull-run, the WGC explains that ‘this simplification does not capture the full depth of the situation…gold is useful to investors in various economic scenarios.’
A study, ‘The impact of inflation and deflation in the case for gold’ finds that whilst deflation may be good for the US dollar, and therefore create negative turbulence for gold, the destructive impact the strong dollar would have on traditional assets was likely to provide a boost for gold, and outweigh the effects from the dollar. The WGC report drives this point home, arguing that we must not be alarmed by the purported low inflation levels as gold will benefit from either scenario.