Jim Grant thinks gold is misunderstood.
Grant, publisher of the widely-respected Grant’s Interest Rate Observer, said at a recent conference that gold is not a hedge on monetary disorder, it’s an investment in that disorder.
According to Matt Borin at CFA Institute, Grant told the crowd at a recent New York Society of Security Analysts conference, “The case for gold is not as a hedge against monetary disorder, because we have monetary disorder, but rather an investment in monetary disorder.”
In his comments, Grant noted that the $11.7 trillion in negative-yielding bonds have created an untenable situation in financial markets. This is Grant’s monetary disorder.
“Radical monetary policy begets more radical policy. It seems to me, at some point, markets or voters will put a stop to this,” Grant said.
And as policies get more radical — the next expected phase from markets is the introduction of something like helicopter money, or infusions of cash into the economy directly financed by the central bank — the higher the likelihood that an investment in something outside the currently-practiced financial system will make sense. Like gold.
Last week, the Bank of England cut its benchmark interest rate to 0.25%, the 666th time a central bank has lowered interest rates since the financial crisis.
But as my colleague Will Martin noted Monday, a recent report from analysts at Barclays outlined how the effectiveness of standard central bank responses to economic instability — cutting rates, buying assets — are running out of gas.
Building off the thinking advanced by Mohamed El-Erian in his book “The Only Game In Town” earlier this year, Barclays said that not only does monetary policy seem to have run out of gas, but the effects once seen as positive may well reverse.
So buy gold, etc., etc.
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