Modern day stagflation? Buy gold
Merrill Lynch
Date: March 30, 2007
As we focus intensely on the implications of the escalating housing recession…and subprime mortgage problems, another development has surfaced that has at least near-term market implications. That development is the resurrection of inflation expectations….core inflation is moving away from our forecast and more importantly, from the Fed’s comfort zone. Rising core inflation means that the hurdle for the Fed to ease policy in the face of a weaker economic and/or financial backdrop is higher that what we had thought before.
…the reality is that inflation concerns are starting to show up again in the fixed-income market...
Another asset that fares well in these periods is gold, which has already rallied 6% since the latest runup in oil… We reiterate that gold is in a secular, not a mere cyclical, bull market…. And if this plays out like other secular bull markets have in the past – emerging markets, bonds, stocks, oil, real estate – then this is a run that can be expected to last at least another five years and ultimately see bullion break the $1,500/oz barrier…. And if gold had merely kept pace with inflation over the past 25 years, the “nominal” price would have already cleared that $1,500/oz threshold. And we have already seen so far this cycle, gold has proven to be very successful hedge against inflation fears...and inflation fears...
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