As the Federal Open Market Committee was preparing to announce that Quantitative Easing was coming to an end on Wednesday, former Federal Reserve chairman Alan Greenspan was speaking before the Council on Foreign Relations. Greenspan, as usual, was very blunt in advising the audience that in his view, under current conditions, gold is a good investment.
Investors look to physical gold as a hedge against inflation, economic downturns, and geopolitical uncertainty. Greenspan is not too thrilled with the direction of the Fed’s current economic policies and he has been publically pushing gold as a good investment for some time (see quote below from 1966). According to Wall Street Journal reporter Michael S. Derby, “Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.”
Quantitative Easing, or QE, was the name given to the Federal Reserve’s billion-dollar bond-buying program designed to stimulate the economy by pumping money back into circulation. During the same speech, Greenspan also gave his opinion on the effectiveness of QE. According to the Wall Street Journal, Greenspan believes that the QE program had not achieved its primary goals and “as a means of boosting consumer demand, the asset purchase program has not worked. The bond-buying program helped lift asset prices and lower borrowing costs, but didn’t do much for the real economy.”
In his time with the Federal Reserve, Alan Greenspan was notorious for the lack of information he would release to the media. So the fact that he is so vocal in his disdain of QE and current monetary policy should tell investors that he is worried enough to not stay quiet.
When asked his opinion on when the Federal Reserve may decide to raise borrowing rates, Mr. Greenspan said, “The Fed may not even have that much power over the timing of interest-rate increases…I think that real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves.”
The bottom-line is that Alan Greenspan foresees an unpredictable and volatile future for both the U.S. and global economies. For this very reason, the only direct advice he has given in his presentations is for investors to look at adding gold to their portfolios as a hedge against all of the uncertainty.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. (…) The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” … Alan Greenspan, 1966