Gold Bugs and the Deflation Dilemma

by Ian McGugan
The Globe and Mail

Gold just enjoyed one of its strongest quarters in a generation, and some people are getting very, very excited.

The World Gold Council, an association of gold producers, is urging investors to double up on – you guessed it – gold. The council’s rationale is simple: Yields on many European bonds have sunk below zero, and savers are looking for other places to stash their money. Gold is an obvious alternative, and the price is likely to climb as a result.

It’s an intriguing argument because, for once, the always-optimistic gold council appears to be making a dispassionate, rational case for its favourite commodity: In the past, real interest rates and gold prices have executed a fairly consistent dipsy-doodle. As one line heads up, the other moves down.

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