Young and Frederick - ScotiaMcLeod Whitby

by Stephen N. Frederick B.Comm 

Inflation is on the rise but North American investors are missing the big picture. Low domestic inflation rates are shielding our view, and giving us a false sense of security regarding this long term economic threat.   One reliable indicator for inflation has always been price of gold.  The headlines and media announce that bullion has been hitting a 40 year price high, and for good reason, global inflation is on the rise.   

The link below clearly shows how inflation on a global basis is well ahead of the levels we experience here in North America.  How is this relevant?   The recent actions of the U.S. Federal Reserve Board have been specifically designed to inflate the U.S. economy.  QE 2, the economic stimulus program now in action was created to accomplish this goal.  When inflation returns to North America, the  momentum of the gains in North America combined with the high rates already being experienced around the world will drive gold prices sharply higher. 

Our long term clients know we have been recommending an overweight position in gold for over 4 years.  This position has paid off.  Is it time to sell?  No. Surging economic activity in developing nations creates inflation as a natural byproduct of that activity.  When the actions of the U.S. Federal Reserve reach fruition, inflation will move higher, and gold will lead the way.  

While this economic scenario may be a couple of years away, gold is still a good investment.  In the short term, it protects against political uncertainty, while in the long term it provides a good portfolio hedge against inflation.   

Each portfolio is different and we strongly recommend  that you consult with us about your portfolio needs before making any decision. 

Please click on this link to view the global inflation map.