[econoclectic] EclectEcon: "Higher Gold Prices? Blame Ahmadinejad, not Bernanke."

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Posted by EclectEcon:
"Higher Gold Prices? Blame Ahmadinejad, not Bernanke."
http://econoclectic.powerblogs.com/posts/1190753972.shtml


   Are higher gold prices a sign that many investors are expecting the
   rate of inflation to rise rapidly?
   Not necessarily, according [1]James Pethokoukis, columnist with
   USNews. He summarizes strong evidence that inflation expectations are,
   if anything, dropping:

     Since their peak on September 20, the difference between nominal
     and inflation-indexed Treasury yields from five to 10 years in the
     future has come down to 2.57 percent from more than 2.6 percent.
     This is probably still higher than Fed officials would like, but
     not in truly worrisome territory.

   So if high gold prices are not the result of rising inflationary
   expectations, what is causing them?

     I think the real message of gold today, as it has been since 2001,
     might just be that we live in a world of heightened risk, and gold
     has always been the ultimate safe-haven investment.
     The most recent surge in gold prices comes at the same as time
     there's been more talkâparticularly by the Frenchâof taking
     military action again Iran if it doesn't abandon its efforts to
     build a nuke. (Interestingly, the last great gold surge happened
     during the Iranian revolution in 1979.) ...
     After falling throughout the 1980s and 1990s, gold bottomed in 1999
     and then began a steady march higher in early 2001. You could
     interpret that 20-year drop as a sign not only of diminishing
     inflation but also that the world was becoming a safer place, with
     less threat of a nuclear war. Likewise, the rise since 2001 and
     9/11 is a sign that the world is becoming a dangerous place again.
     The fear factor is also at play with stocks. The market's current
     price-to-earnings ratio is right at its historical average, a
     strangely subdued state given fat corporate profits and a lengthy
     economic expansion. Higher gold prices? Blame Ahmadinejad, not
     Bernanke.

References

   1. http://www.usnews.com/blogs/capital-commerce/2007/9/25/inflation-gold-and-iran.html