Perhaps, just perhaps, the goldbugs are finally going to be right. Enthusiasts for gold have been bawling about inflation risks from central bank experiments such as bond-buying for five years. So far they have been wrong.
The profits on gold, rising 19 per cent a year since the start of 2007, have made them richer but no less angry.
The European Central Bank last week set out plans to buy bonds of troubled countries under certain conditions. Its aim is not to ease monetary policy but to keep the euro together.
On Thursday, the US Federal Reserve is widely expected to ease monetary policy again.
Ben Bernanke defended bond-buying in a speech last month and many in the markets are preparing for another round of quantitative easing, or QE3. This could be focused on government bonds again or the mortgage market but there are other options including extending the forecast of rock-bottom rates beyond 2014.
QE1, QE2 and last autumn’s Operation Twist all took place (or were flagged up) when inflation expectations were tumbling. The bond market’s implied inflation for the next 10 years, the “break-even” rate, hit zero at the end of 2008, as deflation fears prompted QE1.
Before QE2 it fell to 1.5 percentage points and to 1.7 before last autumn’s Twist (the Fed has set a 2 per cent target). This time round, the “break-even” rate, is 2.38 percentage points, well within the normal range from 2004 to the collapse of Lehman.
The Fed will not be acting to counter deflation or disinflation fears this time. It is worried about jobs, its second goal. With US consumer credit growth back to normal and housing stabilising, this change matters. The inflationary danger is much higher this time round. No wonder gold is rallying again.