Thread: Gold Buying
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Old 19.10.2010, 11:24
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Re: Gold Buying

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The central bankers are walking a difficult tightrope, using inflationary measures like QE to scare people out of cash and get spending it in the real economy. This causes gold to go up; I reckon that there will be a final gold spike that the central bankers must react to, or let their currencies fail. The only way they can make paper money attractive once again is to raise interest rates to the level that paper money gives a real rate of return (e.g. 8% minimum). If it plays out like this, it would be time to switch into cash bonds!
I doubt very much that interest rates will go up in the USA and the UK.
This being because:
(1) The governments would have to pay more interest on their debts.
(2) People would not be able to pay their mortgages/loans and those that could would have less consumable income and this would slow the economy down even further.
(3) The banks would have to lower their profit on interest (take UK at the moment - bank base rate 0.5% and mortage rate 4.2%. They actually need this huge margin to cover the bad debts they have and to increase their capital and the government realise this and that is why the government says nothing as well as the fact that the government is majority stake holder in these banks and is at risk with these banks).
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