Why invest in gold coins while interest rates are low?

November 16, 2010 – As if any more were necessary, we have another signal that now is the time to buy gold coins. Rate futures – a derivative based on interest bearing assets – are falling across the board. These instruments are a hedge against adverse movement in interest rates, in this case the falling price reflects a broad expectation that rates are being pressured upwards.

While official policy states the intent of keeping interest rates low, much political capital could be gained from letting rates rise and consequentially initiating inflation. Any ill effects of inflation would, at least for the short term, be outweighed by a decline in unemployment and the apparent reduction in national debt in terms of a cheaper dollar.

Futures trade by definition is speculation on the near future. Signals from rate futures are the strongest suggestion yet that the transition from the current deflationary cycle to one of inflation may not be as distant as commonly thought. Traditionally conservative pundits are now recommending “tilting” portfolios towards the inflation protection of gold while even such ultraconservative funds as California’s teacher retirement fund are taking their first steps towards diversifying with gold.

Clearly something is going on that is contrary to official announcements. Perhaps economists are beginning to pay heed to the implications of long wave theory, a tool used to examine historical economic cycles. Long wave models accurately describe the economy today as we near the end of a long period of deflation. Although the models are not intended to predict when future events will occur, they are very effective in describing how they will occur. And the switchover to inflation will likely be swift and severe.

Investing in gold coins while interest rates are low not only has the potential for greater returns than traditional assets, it will protect such assets against inevitable inflation.

Kevin Johnson

Senior Staff Writer –

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