As Countries Gobble Gold, Volcker Warns of Inflation

The price of gold in US dollars was up 1.5% this morning, boosting it to a 2-1/2 week high. Although the financial media continues to be bearish on precious metals, central banks around the world are starting to look more closely at the yellow metal as an important asset. Their reasons for buying or considering to buy gold vary widely from one bank to the next, but analysts are starting to expect a boost to the gold price in December thanks to central banks.

The 3rd quarter of 2014 marked the 15th consecutive quarter that central banks were net purchasers of gold, according to the World Gold Council. Here’s a brief rundown of some of the notable international gold news this week:

• The ECB may begin buying gold, but for all the wrong reasons.
• Russia is buying gold hand-over-fist this year, accounting for 59% of all central bank gold purchases in Q3 2014.
• Switzerland votes on its gold referendum on November 30th. If passed, the Swiss National Bank may begin buying as much as 300 metric tons of gold per year. While news agencies are reporting that this wouldn’t affect the price of gold significantly, other analysts believe it could give a significant boost to the price.
• India keeps importing gold, though not on behalf of its central bank. Indian gold imports shot up fourfold, year-over-year, in October, totaling more than $4 billion worth of the yellow metal.

Perhaps these countries are starting to think like the financially conservative Paul Volcker, who recently had some scathing remarks about US monetary policy. Volcker is the former Federal Reserve Chairman who managed to stop inflation in its tracks back in the early 1980s. He is completely boggled by the Federal Reserve’s current course. Here are a few choice quotes from the Wall Street Journal article:

Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, ‘Do we want prices to double every generation?’”
…
“‘The fate of the Federal Reserve can’t depend on the accuracy of the forecasts it makes two years ahead,’ he said. Offering up forecasts with greater frequency and details–the Fed now does this on a quarterly basis–simply demonstrates to the public ‘more frequently the forecasts aren’t that accurate.'”

Given Volcker’s sensible view of the economy, it’s no wonder that he stepped down from President Obama’s economic advisory board back in 2011. The likes of Obama, Bernanke, and Yellen certainly wouldn’t want anyone around who might draw attention to how damaging their economic policies are. Just as with Alan Greenspan, it’s unfortunate that Volcker has waited so long to call attention to the fundamental realities of monetary manipulation.

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