Comments on: Gold Price to Keep Rising as Deflation Hits, US Dollar Loses Value

By: Keith Guyman

Keith Guyman — Mon, 02 Feb 2009 14:47:39 +0000

Isn't anyone's guess. I can see the validity in maintaining property that has worth to the individual. Gold always will have worth. It may not be as to convert into cash readily as other items but it least doesn't have the downside of bonds, bank accounts, stocks and CD's it is not imaginary and based on others obligations and purported worth. Gold is not debt painted over.

By: David

David — Thu, 23 Oct 2008 16:13:54 +0000

Just stumbled across this and a year after the last post, things certainly have changed. And gold IS going down just as predicted because entities are selling it to make ends meet. The government HAS panicked a with the trillion dollar credit bail. We appear to be heading into a strong deflationary period, with oil now following home prices and stocks downward big time. So we are about to find out what will happen AFTER the massive sell off to meet obligations, wanes. If it is a worldwide deflation its a complete toss up as to where gold will end up against each currency. A dollar that is strong only because it is less of a depression here than elsewhere is not REALLY a good thing, now is it.

By: bill

bill — Thu, 27 Sep 2007 04:56:13 +0000

"home building, a most mercurial industry, had been falling for several years, and it slumped still farther in 1929."

The Great Crash,1929, chapter v, by J.K. Galbraith

my dad was a runner on wall street when the crash occurred. he spoke of this thing that came out of nowhere; people jumping out of windows, banks offering to pay part of your deposit if you agreed to fore go the balance, how he lost a good friend who borrowed some money and never paid it back, sweetening his coffee with a lollipop because sugar was expensive,etc.
he was a smart kid so he survived.
before he passed on he left me some advice(gold).
bill

By: jack

jack — Wed, 26 Sep 2007 12:00:53 +0000

In a deflation scenario, 1. I wouldn't put my cash in the bank, because I am afraid the bank would go bankrupt. It simply means the bank borrows money from me and then says "sorry I can't repay you". Physical gold wouldn't have this problem, unless you lend it to somebody for interest. 2. I probably will buy government bond or get cash stored in my bank deposit box. But most likely the central bank will keep printing money via social welfare system or government spending. I don’t object people to own physical bond or physical cash. But before the deflation comes, it’s usually inflation. Would you hold physical cash or bond in inflation? Can you time the market to sell everything before the crash? This is the risk I don't want to take. 3. Foreign Curreny? Maybe. If it's global deflation, probably not good either. And you also need to take into account the possibility of exchange control. And where do you store your foreign currency? Bank? 4. Gold. Unless a person holding gold is heavily leveraged. And he has to sell off his gold to cover his mortgage, margin call. I believe there would be an initial sell-off in gold, but eventually it would come back up or at least wouldn’t decrease in value as much as other assets, because the amount of gold ever mined is limited and it’s no one’s liability. Paper money is all about people's confidence. But I am afraid that people's confidence is very fragile. Nowadays, every household behaves like a hedge fund. It doesn't matter what happen in the world, an ounce of gold will be still worth something in the foreseeable future, but paper currencies could literally go to zero value. Most importantly, in the case of the deflation, do not own debt. Preserving savings is more important than earning money in deflation. It’s not about the value of gold going up in absolute terms, it is about one ounce of gold can buy more things in relative terms, in other words, gold’s purchasing power is increased.

By: kage

kage — Wed, 26 Sep 2007 11:50:54 +0000

Correction: India no longer has export restrictions

By: kage

kage — Wed, 26 Sep 2007 11:12:35 +0000

Gold owners hopefully would not be carrying any obligations at this stage of the credit cycle, so they won't need to sell their gold. During a deflation, gold increasingly comes to be viewed as money and can be seen as an alternative source of liquidity. The 'price' of gold could still fall, but not nearly as fast as the prices of other assets. Remember wages will also be falling, so gold will become increasingly important to the saver, and therefore increasingly sought after. Central banks know all of the above and will be keen to keep what little gold remains to them, as no-one will want their bond offerings. Remember also that the majority of gold is held in private (hopefully strong) hands. Many of these private owners reside in India where I understand export restrictions exist for gold. ie. it goes in, but doesn't come out again.

By: kayle

kayle — Wed, 26 Sep 2007 09:23:02 +0000

Two questions, tho:

1) When prices fall along with everything else - as you point out - people rush to sell whatever solid assets they have so they can meet their obligations. Why would they not sell off gold as well? Thus driving the price DOWN...and making gold a losing investment during deflation? Good time to BUY it then, maybe...after the sell-off...?

2) Again, as you say, monetary authorities would panic - the central banks would sell their gold in an effort to keep prices down, I would think. Again, doesn't this mean that in deflation we're better advised to convert as much as we can to cash? (Including our gold...?)

That's of course assuming we can find a currency that seems stable.

I'm really asking. I love the bright yellow metal and hold it dear myself. But I am not sure how I'd feel about keeping it if I were a strapped debtor....