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|User Info||Listen To The Hucksters, Lose Your Ass; entered at 2010-05-30 21:28:20|
Registered: 2009-05-24 Philadelphia
Cash may do better than gold in a deflationary environment, but not if your "cash" is really someone else's liability and they default. In the Depression, Americans did really well if they held cash...unless their bank went under, in which case they were wishing that they owned anything else.|
If things play out like they did in the late 70s and early 80s, the price of gold is eventually going to go back down again. However, the magnitude of today's crisis is much greater than it was then. For that reason, I don't think that we are anywhere close to a final peak in the price of gold yet. Gold was over $800 back then, what price in real dollars would that be now? It wouldn't surprise me if we get to $3000+ before gold peaks.
If sovereign governments start to default, gold is probably really going to benefit...for a while. Keep in mind that significant gold appreciation would help keep central banks and governments solvent. Even the PIIGS countries own a fair amount of bullion.
Although physical gold was confiscated by Roosevelt, gold mining stocks actually did quite well in the deflationary 1930s. However, if gold ends up going to the moon, don't expect to keep your profits either, because it is likely to be singled out for special taxes. Australia for example just imposed a new tax on miners. There are probably classes of other hard assets that are going to do better than gold in the years to come, and that will attract less scrutiny.
My theory is that gold is competing with carbon credits as the backing for the next reserve currency. The price of gold will probably drop if a new currency regime is announced that is backed by anything other than gold. People like us will not be the first to know when this is about to happen, so I wouldn't put all my eggs in the gold basket.
Last modified: 2010-05-30 21:29:34 by jlk