Credibility of Words...

Credibility of the central banks is more important than backing your economy by gold. The purpose of the gold is to hedge against inflation and price rise. But that is from an investor’s point of view, the central bank needs only to make credible promises regarding inflation. Their words are more important. In today’s world where recessions are frequent and have been accepted as part of trade cycles and common we constantly need to infuse money and demand. And, in this period of crisis even if the central bank has too much gold pumping more money will erode the value of gold too as in case of money. It makes no difference whether we have gold or not. Pumping more money in the economy will only mean less value for our gold and money. It is inevitable. These days gold has a value only in the eyes of common investors. But that is a myth too. Gold can never restore the value of money once lost. It only compensates in form of the amount of money but that is subject to decrease in value of money also because inflation rises every year. The inflation we see at 2% or 3% is a gauge of increase not a constant value. It also means that gold is losing value with the same rate unless you increase your investment. It is same as depreciating currency, amount increases but value decreases if other prices rise too much. In times of high inflation central banks increase interest rates and economic activity declines and gold prices fall too and therefore it is good to put your money in inflation indexed assets that are paying higher interest rates. Any investment is just a myth as long as inflation and inflationary expectations are not properly anchored. In this world only words have value and gold has a value as long as there is a buyer…