The current line of thinking is that it’s the round-robin competitive currency devaluations that’s really boosting gold to record highs.
Japan weakens the yen. The US eases. Brazil weakens the real. Japan weakens again. Around and around the print parade goes on, and the main beneficiary is gold, the anti-currency.
It’s a pretty logical argument, and it’s not obvious what will end this game.
Bad for gold would probably be a return to robust, sustainable growth and modest inflation — pretty much the opposite of what we see now. But this doesn’t seem imminent.
But is there any event or headline that could whack gold? We can only think of one, and that would be a serious move by China to revalue the yuan. Alone that wouldn’t be the economic panacea many commenters imagine it would be. It wouldn’t all of the sudden reverse the much-derided trade imbalances. But it might put a halt to the competitive devaluation daisy-chain, as Japan, Brazil, and the US might feel a bit less pressure to weaken their own currencies.
That would probably take a lot of the air out of gold, but that being said, it’s hard to imagine China making this move any time soon, and in a dramatic way.
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