Grant: Buying Gold Reflects Distrust in Government

Tuesday, 20 Sep 2011 12:31 AM

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Grant's Interest Rate Observer editor Jim Grant says there's no gold bubble — investors race to the precious metal just shows how little they trust governments.

"A bubble is a bull market in which the user of the word 'bubble' has not fully participated," Grant tells Barron's. "You can think of gold as a stock that went from 2and 5/8 to 18 in a dozen years. I'm not sure that's a bubble ... gold is simply the reciprocal of the world's faith in the institution of managed currencies."

“Gold is a desirable asset for people who wish to get out of the way of the fire of financial repression, which is more a threat at the moment than a promise,” says Grant. “Governments certainly have it in their capacity to interrupt capital flows and make life difficult for people with wealth."

"Gold is an expression of the world's justifiable distrust of the way our central bankers conduct their affairs.”

One of the essential features of the classical gold standard Grant favors is that there is no reserve currency.

Markets are distorted by the huge outpouring of paper currencies, Grant says, whereas with the gold standard, “nobody gets a special credit card, everyone gets a debit card, and deficits and surpluses are settled promptly in cash.”

“The essential feature of the current monetary system is procrastination. It's ‘Oh, we'll get to that, we'll balance accounts later.’ But it turns out we don't.”

Thestreet.com reports that gold prices popped as nervous investors seeking safety awaited economic events in Europe.

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