Re: Gold
Just saw this in John Maulden's "The Daily Reckoning" of 10/31/02
"Sun Valley just released a thorough report on how gold performs in deflation. Turns out, gold is one of the best things you can own. When times get tough, businesses go belly-up and loans go bad. People begin to wonder about the quality of the paper they hold. The dollar, the world's most ubiquitous paper asset, could take a big drop. Investors look for safer places to put their money. What they find is gold, the money-of-last resort, the anti-paper asset."
I believe that is just what happened in Japan's recent deflation -- people turned to gold.
Logically, I would assume the opposite would happen and that the price of gold (basically a commodity) in terms of the USDollar would fall during a period of deflation in the USDollar, since gold is basically considered as a "store of value" (commanding the same amount of goods and services regardless of whether it rises or falls against the dollar), and in deflation the value of each dollar bill RISES (in the sense that each dollar can buy more goods and services).
Worldwide, of course, if people lose confidence in the dollar, and everyone converts their hoards of dollars into gold, the price of gold would artificially inflate, as happened in the early '80's. But why would one expect people to lose faith in a currency that was gaining value in "real" terms (purchasing power)?
I would expect gold to rise mightily in a period of inflation, but in deflation? At least within our borders, I would think people would, psychologically at least, be unhappy with a commodity purchased at say $300 one day, that could only be sold for $290 the next, regardless of the fact that the $290 had more purchasing power than the $300 had the day before! I think people would hang onto those highly-liquiid, rising-in-purchasing-power dollars, and eschew gold and other (especially highly illiquid) investments such as real estate!
I'm not conversant with the ins and outs of the currency markets, nor do I understand exactly how other currencies would be expected to react to a deflating dollar (except the concept of deflating their own currencies to maintain their price advantage in our marketplace), so maybe it is correct that on a world-wide scale the price of gold would rise mightily against the USDollar during deflation in the dollar. Just seems odd to me.
Newly
News 
Market Data 
Discover 
