Gold prices will benefit from 'cure of deflation'

The manager of two major funds explained yesterday (December 16th) that the US interest rate decision is a sure indication that investing in gold is a prudent course of action, Reuters reports.

The Fed announced that it had slashed its overnight target to a record low of zero to 0.25 per cent and that it would be using "all available tools" to stave off a lengthy recession.

Now Axel Merk, manager of the Merk Hard and Asian Currency funds, which has around $300 million worth of assets, has conceded that the move was motivated by deflation fears.

However, he noted that inflationary pressures will soon take over - to the benefit of anyone with a gold investment - because the central banks have flooded the markets with money.

He told the news provider: "Gold does not benefit from deflation, but rather it benefits from the cure of the deflation."

Last week, Sanjiv Batra, the chairman and managing director of MMTC, India's largest bullion dealer, put forward a similar view when he claimed that gold prices will rise in the coming years.

"Long-term gold prices have to be up. Gold has a bright future," he said.

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