Gold has been one of the best-performing assets in recent times. In 2010, it beat the S&P 500 Index by almost 50 percentage points. After struggling early in 2011, it has regained momentum en route to new all-time nominal highs against the US dollar.
This rally in gold is a reflection of the poor job the Federal Reserve is doing and the market’s lack of confidence in the central bank and the US, said David Malpass, president of Encima Global, on Bloomberg TV.
The Federal Reserve’s ultra-loose monetary policy, combined with loose fiscal policy, has driven capital away from the real US economy, he said.
Now, in addition to sophisticated investors, even regular citizens are either investing in gold (often via ETFs) or in foreign equities, instead of putting money to work in the US economy, he said.
The US government, through its loose monetary and fiscal policy, is running “a giant Asian stimulus program.”
To reverse this trend, regain the public’s confidence, and attract capital back to the US economy, Malpass recommends reigning in government spending and tightening monetary policy.