Given the backdrop of easy money and what appears to be a race to the bottom in the fiat currencies, some investment analysts are convinced that the risk of hyper-inflation is building. In their world, you gotta load up the truck with gold, since it should be treated as an alternative currency.
But lately gold is falling fast, and has recently broken its long term trend line. Why is it heading down? Some analysts blame famous hedge fund managers selling what they can to meet redemptions. Others think European illiquidity and growing austerity are the cause, while a third group believes this is just a healthy pull back after an enormous overshoot that took place earlier this year.
Another theory is that gold — which is known as an inflation hedge — is signaling a deflationary impulse on the horizon. A number of signs could be lining up to support that idea: Bond yields are sub 2% in the U.S., growth is slowing hard in many international markets, wages are falling, and money velocity is still broken (indicating that the efforts of central banks are having a zero multiplier effect on our economy).
While we can’t be sure of the precise reason for its recent bloodbath, gold might be signaling that deflation is around the corner.