16 Sep 10
2 edits
Originally posted by Metal BrainDepressions generally cause deflation (or keeps inflation at very low levels). So by itself, this would not be good for gold.
Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression
http://www.nytimes.com/2010/06/28/opinion/28krugman.html
Could this be why?
the investors willing to invest in high-priced gold would be betting that this depression leads to the passage of new and enormous stimulus packages that lead to runaway deficits leading to countries having to print huge amounts of money to avoid defaulting on their debts.
But the election of anti-stimulus pro-balanced budget conservatives would definitely throw a wrench into this scenario.
16 Sep 10
Originally posted by MelanerpesYou are wrong.
Depressions generally cause deflation (or keeps inflation at very low levels). So by itself, this would not be good for gold.
the investors willing to invest in high-priced gold would be betting that this depression leads to the passage of new and enormous stimulus packages that lead to runaway deficits leading to countries having to print huge amounts ...[text shortened]... i-stimulus pro-balanced budget conservatives would definitely throw a wrench into this scenario.
http://inflationdata.net/precious-metals/gold/gold-investment-inflation-deflation/
16 Sep 10
Originally posted by KazetNagorrahedging/hoarding is an old application, it doesn't need a new one.
I don't see the fundamental reason for an inflation-adjusted price increase of 200% over the last decade. Did we invent some new application for gold in the last decade that would make it more useful?
16 Sep 10
Originally posted by Metal BrainFor free access to this and other articles, you must be a registered member of NYTimes.com.
Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression
http://www.nytimes.com/2010/06/28/opinion/28krugman.html
Could this be why?
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16 Sep 10
1 edit
Originally posted by Metal Brainthe article more or less says the same thing I was saying
You are wrong.
http://inflationdata.net/precious-metals/gold/gold-investment-inflation-deflation/
Gold is also an excellent hedge in periods of deflation. What is happening in times of pronounced deflation? Public budgets are strained, the financial sector is faced with systemic problems, currencies are depreciated in order to reflate the system, and the money supply is continuously rising. The creditworthiness of companies and countries is queried, the confidence in paper currencies falls, and gold is subjected to remonetisation.
If the government enacts a lot of various "stimulus" measures, the effect of this can be a future increase in inflation.
But by itself, a depression is going to have a deflationary effect -- and if, as now seems to be the case at least in the US, the political winds favor avoiding or blocking stimulative measures and instead focusing on cutting spending and balancing the budget, then gold prices are going to be hit hard.
Another thing to consider is that in the US, at least, the prevailing monetary policy has been to be extremely quick to clamp down at the first sight of inflation -- the memories of the 1970's are still rather strong and no one wants to go back. So even if inflation was to start emerging as the economy recovers, the Fed is likely to crack down quickly enough to keep it well under control.
16 Sep 10
Originally posted by Metal BrainI said that deflation by itself was not good for gold -- I also said that deflationary conditions might cause governments to act in ways that cause future inflation. And that is what the article also said.
You said deflation was not good for gold. That was clearly an incorrect statement.
the article you linked to also has a nice little graph showing the close correlation between the price of gold and "expected inflation" -- so if investors are expecting lower levels of inflation or outright deflation, the price of gold goes down.
16 Sep 10
Originally posted by MelanerpesWe are already experiencing disinflation and what is gold doing? It is not going down as you say, it is going up. The expectation of deflation can do that. You are wrong, why don't you just admit it?
I said that deflation by itself was not good for gold -- I also said that deflationary conditions might cause governments to act in ways that cause future inflation. And that is what the article also said.
the article you linked to also has a nice little graph showing the close correlation between the price of gold and "expected inflation" -- so if inv ...[text shortened]... rs are expecting lower levels of inflation or outright deflation, the price of gold goes down.
16 Sep 10
Originally posted by Metal Brainare you saying that the chart in your article that shows the close correlation between "gold prices and expected inflation" is wrong?
We are already experiencing disinflation and what is gold doing? It is not going down as you say, it is going up. The expectation of deflation can do that. You are wrong, why don't you just admit it?
16 Sep 10
3 edits
okay -- I agree with the chart -- the price of gold is closely correlated with the expectation of a given level of INFLATION.
according to the chart - an expectation of low inflation (or deflation) will cause the price of gold to drop
now if an existing deflationary situation causes people to expect government responses that will cause inflation levels to rise in the future, then yes, a deflation can INDIRECTLY lead the price of gold to go up.
on the other hand, the reason why Krugman is so gloomy about the future of the economy is because he believes the government is going to be more focused on belt-tightening and budget balancing than on enacting new big stimulus plans - things that will have a deflationary effect on the economy - so in this instance, the people expecting lots of inflation in the future are likely to be disappointed.
16 Sep 10
Originally posted by KazetNagorraYes. We discovered that it is a more reliable investment than US dollars.
I don't see the fundamental reason for an inflation-adjusted price increase of 200% over the last decade. Did we invent some new application for gold in the last decade that would make it more useful?
Gold is largely a currency and should be analysed as such. If the dollar had increased in value relative to other world currencies, would you similarly be suggesting a bubble?