Don't just tell me you love me, show me that you do. That mantra is so true. It is actions, not so much words, which reveal the heart. But that axiom is not only true in matters of romance.
In the same manner, it is the actions of central bankers who lord over fiat currencies that count, not their lip service paid to a belief in sound money, in which they have is no conviction whatsoever. In their primary quest to support banks and profligate governments, Mssrs. Bernanke and Draghi clearly illustrated last week by their actions that their hearts are far removed from the middle class of their countries.
Mario Draghi, who became the head of the European Central Bank November 1st, wasted no time in demonstrated his desire to destroy the purchasing power of the Euro. He cut interested rates to 1.25% from 1.5% just three days after taking over from Jean Claude Trichet. It made no difference to Mr. Draghi that the ECB has a single mandate to control inflation. Despite the fact that EU 17 has a 3% rate of inflation, which is well above the central bank's 2% stated target, his promises to fight inflation didn't seem to matter. He printed more Euros and lowered interest rates anyway.
Not to be outdone, Mr. Bernanke's words last week uttered during his prepared statement and press conference indicated that inflation pressures have eased and will continue to subside. Quoting from his release; Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Hence, the reasoning behind his actions of leaving interest rates in the U.S. near zero percent for the last three years and his promise to keep them at that level for at least another two years. But the data from the Bureau of Labor Statistics directly conflicts with his words. The following is the YOY increase in Consumer Price Inflation from January thru September of 2011: 1.7%, 2.2%, 2.7%, 3.1%, 3.4%, 3.4%, 3.6%, 3.8% and 3.9%. Maybe you can find where inflation appears to have moderated.
It seems obvious to me that central bankers care very little for the value of their currencies. Instead, they concentrate much more on boosting the earnings of the banking sector. Investors would fare far better if they in turn concentrated on central bankers' actions rather than their words. And their actions right now are clearly sending a buy signal for gold.