stagflation — inflation coupled with slowing growth

Last week, I read two articles on gold. One, in U.K. daily The Independent, was very bullish. The other, from the U.S. financial Web site MarketWatch.com, was bearish, and favored equities no less!

From my contacts, it is clear that some of our readers are equally confused as to the outlook for the alluring, yellow metal. So let me offer an opinion.

Confusion is entirely understandable. This is because there are two major forces tugging at the underlying price of gold, the two, contrary forces of stagflation — inflation coupled with slowing growth — which are currently and unsurprisingly causing great confusion to our government, the Fed and to many of us investors.

As we warned over a year ago, to the astonishment of some at the time, our economy is heading towards stagflation. It is caused by a subprime-induced economic recession and low cost, liquidity-driven financial inflation, both at the same time.

As we have also warned repeatedly, stagflation is a central banker’s nightmare. That is why we have had such sympathy for Fed Chairman Ben Bernanke, who I believe was handed a poisoned chalice of government-driven stagflation by the very “politicalâ€