Gold as a tier 1 asset?

tch · Jan 19, 2013

And you have people like Max Keiser even spreading this misinformation... Around the 23 min mark of a recent Keiser report: http://rt.com/programs/keiser-report/episode-391-max-keiser/

Pirocco · Jan 27, 2013

It's rather the opposite
http://www.straitstimes.com/breakin...ld-allocation-inflation-allure-fades-20130124
"HSBC halves strategic gold allocation as inflation allure fades"

But I judge this a good news. I don(t like to buy gold because too much in hands of them, but if they get out, well, ... haha.

JulieW · Jan 27, 2013

David Morgan - inflation vs deflation and metals
http://www.silver-investor.com/blog/silver-market-update/what-happens-to-gold-during-a-deflation/

Looking at the Opinions

Dr. Marc Faber one of the most respected and best followed in the industry has stated his opinion on the deflation debate as follows"Therefore, under both scenarios stagflation or deflationary recession gold, gold equities, and other precious metals should continue to perform better than financial assets." See article here.

link http://www.ameinfo.com/134334.html

Again going back into the distant past we might glean something

Castrese Tipaldi wrote on SafeHaven.com, "I don't know if in the last week we saw the last gasp of those usual subjects trying to cap gold, and I don't know if we now have the very last possibility to get silver at a price so cheap." What makes this quote so interesting to me is he wrote this on April 20, 2004. See article here.

link http://www.financialsensearchive.com/fsu/editorials/2004/0420.html

Steve Saville of the Speculative Investor writes, "The most important difference between then (the 1930s) and now is that gold and cash US Dollars were interchangeable during the early 1930s (the deflationary period) by virtue of the fact that the Dollar was defined as a fixed weight of gold. A typical effect of deflation is an increase in the purchasing power of cash. The fact that gold and cash were officially linked during the 1930s meant the deflation caused the purchasing power of gold to increase along with the purchasing power of cash. In other words, under the monetary system that was in effect during the 1930s gold was a hedge against deflation. Furthermore, under such a system the purchasing power of gold would decrease during periods of inflation; that is, when the dollar was defined in terms of gold, it would have made sense to shift investment away from gold during periods of inflation."

Adam Hamilton of Zeal LLC wrote, "Anything typically financed by debt is likely to see its prices plunge dramatically, like houses and cars, as the ongoing Great Bear bust continues to destroy the gross excesses of debt via higher long rates. Conversely, anything not typically 'paid for' with debt, including groceries and general living expenses, is almost certain to rise in the coming years. We are staring down a brutal environment of widespread inflation marked by various sectors witnessing falling prices as debt leverage implodes." See entire article here.

link http://www.zealllc.com/2003/infdef2.htm

One of my favorites is from Dan Ascani, who wrote essentially about Professor Jastram's very long-term study on gold, and he essentially states that Jastram studied four pronounced price deflations taking place. In all four deflations, operational wealth in the form of gold appreciated handsomely. When one sees that just by holding gold for 13 years, from 1920 to 1933 operational wealth would have increased 2 times, one realizes that gold can be a valuable hedge in deflation however, a poor one in inflation.

Several years ago my entire presentation in The Morgan Report was on the topic of silver and gold during a deflation. In fact this writer is fond of quoting Professor Jastram in both of his books. The Golden Constant which looked at gold during both inflations and deflations, and Silver the Restless Metal which was a similar study for silver. Currently it seems the physical markets are taking control, yet the clues are still subtle, nonetheless with Hugo Chavez asking for Venezuela's gold to be returned we must ask is this the tipping point in the physical gold market that is the start of a trend?

Gary North states, "There are a few contrarians who think that deflation is coming: both monetary deflation and price deflation. As far as I know, there are only about a dozen of them who write newsletters or run websites. For some reason, most of the deflationists seem to think that gold's price will rise in a mass deflation. They do not warn their subscribers, 'Don't buy gold or silver!' If they did, they would have fewer subscribers." See entire article here.

link http://www.lewrockwell.com/north/north436.html

Bob Prechter has written much on the topic; his overview of defining Inflation and Deflation can be found here.

link http://www.elliottwave.com/deflation/

Further, Bob goes on and states that neither gold nor silver will do well in the deflation he had predicted for so long. Specifically, "I'll cut right to the chase: Unless you're about 80 years old, the United States economy is undergoing the worst downturn in living memory. Every measure of growth is grim. The world's most recognized stock index the Dow Jones Industrial Average is down 30% from its October 2007 all-time high.

"If ever there was a time for the 'Safe-Haven' lure of precious metals to surface now, yesterday, even seven months ago when the Bear Stearns' bailout launched the historic reshaping of Wall Street would have been it. Yet, from its March 17 record peak, GOLD prices have plummeted more than 20%."

So much has happened since Bear Sterns and Lehman Brothers that it might take volumes to go into it all, let's simply request that you ask yourself if the financial conditions has gotten better or worse since then?

You can read many varying views on what will happen to gold and/or silver under a deflation. Right now the financial marketplace is so unstable that it is difficult to put too much faith in anyone's opinion based upon such a short snapshot. Doug Casey has repeated often that the metals, and particularly gold, are a CRISIS HEDGE. I think this is the way to look at the situation.

We have already has the financial "crisis" of 2008 and even the mainstream refers to the massive sell-off as a crisis. Since then both gold has made a new nominal high and silver got very close to its old nominal high of $50.00

The question again for you is

Has all the stimulus and government/political interventions worked or not?

Be thoughtful in your answer your financial future may well rest upon your action or inaction.
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and this:
http://www.marketoracle.co.uk/Article35758.html

The definition of 'deflation' is:

While inflation erodes the value of money, which progressively buys less and less per unit, deflation makes money worth more. That makes people and businesses less likely to spend it - consumers because they expect even better deals if they wait, and businesses because it's less profitable to produce goods or services that will bring a lower real return. These factors can feed on each other to produce a downward economic spiral, as happened in the Great Depression.

To us this is over simplistic as it describes only one picture of deflation. In a global economy, the definition needs to account for the value of each currency area suffering deflation. After all the balance of payments comes into play and in turn the international value of the currencies suffering from the aberrations of deflation and inflation.

As brought out in her recent article, Rhona O' Connell pointed out that in "The Golden Constant", written by Roy Jastram over 30 years ago and recently re-released including fresh material by economist Jill Leyland, tells us that in the U.S. there have been three recorded deflationary periods and gold increased its purchasing power in each of them, by between 44% (1929-1933) and 100% (1814-1830).

Please note that this was at a time when the gold price was fixed and unable to rise. Nevertheless, the purchasing power of currencies fell against gold. We learn from this that while governmental controls do work, they work only up to a point then are overwhelmed by market forces.
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tch · Jan 27, 2013

Pirocco - As to HSBC, we'll start worrying if they ever stop being the custodian of GLD! And TIPS rely on the govt's inflation statistics to be accurate. Anyone who believes in those CPI stats is not an entity we want to be following!

JulieW - I've got one criticism of this deflation argument that money becomes more valuable as it becomes scarcer. Scarcity alone won't be enough to increase the US dollar's purchasing power IMO. Before that occurs, the Fed will print a LOT of money (more straight monetisation) and gold will have gone up in value well before any nominal drop in price occurs. There are many scarce objects out there that aren't valuable out there, simply because they've gotten to a stage where people don't want them. Whilst there will always be some demand for the USD, I don't buy the deflation is bad for gold argument.

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Gold as a tier 1 asset?

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JulieW Well-Known Member Silver Stacker

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