Central Banks Are Fully Committed to Radical Intervention (Video)

James Grant, Founder of Grant’s Interest Rate Observer, spoke with Kitco about his disappointment in the current price of gold. He places most of the blame on central banking, and the market’s inability to understand the long-term consequences of monetary manipulation. However, Grant believes it won’t be long before the world wakes up to the realities of this manipulation and returns to gold as a safe-haven investment.

The gold price, is to me, the reciprocal of the world’s faith in the words, deeds of these central bankers… The lower the confidence [in central banking], the higher the gold price.

“I, for one, can’t imagine why anyone would have confidence in the doctrines of central banking, predicated as they are on the manipulation of prices. Interest rates are prices. Central banks are in the business now, more than ever, of manipulating interest rates. They are inflating asset markets. It seems to me that the world will eventually see that these policies are non-starters.”

Highlights from Grant’s interview:

“I think central banks are mainly marching to the same beat of the same drummer. That drummer is the drummer of radical intervention. The important fact, certainly for gold investors… is that the virus of radical monetary policy is now coursing through the world’s political bloodstream. Central banks, having done what they did, and continuing to do what they are doing, by way of suppressing interest rates and materializing these great clouds… of digital wampum we call QE – central banks have really committed themselves to do more of that in the future. Why would they not?

“The next time there is a recession, the next time there is a stock market pullback of consequences, what are they going to do for an encore? They got to do something. I think the doctrines of central banking are now fully committed to radical intervention. In order to have an effect, it’s going to have to be more dramatic and more far-reaching…

“The gold price, is to me, the reciprocal of the world’s faith in the words, deeds of these central bankers… The lower the confidence [in central banking], the higher the gold price. I, for one, can’t imagine why anyone would have confidence in the doctrines of central banking, predicated as they are on the manipulation of prices. Interest rates are prices. Central banks are in the business now, more than ever, of manipulating interest rates. They are inflating asset markets. It seems to me that the world will eventually see that these policies are non-starters. Or, if they are starting, then they will not end well.

“There will be some movement, some collective doubt about what the central bankers are doing… More people than me or you are going to come around and say, ‘Look, this is price control in all but name. It’s not working. It shouldn’t work. The theory is wrong. The practice is dubious. Therefore, let us have a hedge against the failure of these policies.’ That, to me, is the simple case for gold…

“I like the Scrooge McDuck method of collecting Krugerrands. I own mining shares through mutual funds… For years, starting in the late ‘90s… we bought gold and hold it still.”

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