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Gold and deflation.


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There has been much discussion on here and on HPC with regards to how gold may perform if we have a period of deflation. There are many who think it’s value will definitely soar – and I disagree.


If I may be clear on this one – I advocate holding some gold and silver in a deflationary environment though!!!


I have to look at history here. Gold and silver tanked along with everything else last time round, and, although it may be, I’m not sure this time will be any different.


Sure there may be a panic into gold, there was a panic into silver in the early 30’s, but the spike was brief, and silver continued to slide. The gold price held up coming out of deflation but gold bugs seem to conveniently neglect to say that the gold price was at that point fixed by the US Government. Who would want to sell gold at that point when everything else was going down and at the same time dollars were increasing in value?


Get this then – gold was effectively pegged to the Dollar !!!!!!! (By other means than a gold standard).


Could anyone post a chart or table etc that shows my assertions to be wrong please?

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gold can't really be a delflationary and inflationary hedge at the same time. Most deflation supporters Prechter/Mish etc. would buy gold when it gets cheap as they would see a greater inflation after the deflation. If deflation is a reduction in money and credit then by definition it's value will increase against goods and other asstes. However I guess it's no good if your bank goes belly up.

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I think I will need to read the following again - unable to judge how useful it is.



The Behavior of Gold Under Deflation

Sun Valley Gold Company 27pages


'The behavior of gold under deflation has received little serious study in recent years. As

most investors consider gold a hedge against inflation, many extrapolate that since gold

performed poorly under the 1980s disinflation: surely it must do even worse if we

actually experienced an outright deflation. As we have discovered through a detailed

review, the conventional wisdom ignores the lessons from history. It is the impact of

deteriorating economic activity on credit quality - not whether we operate under a fixed or

floating rate exchange system - which is the operative factor driving gold’s behavior under




second pdf down



On something else, if the US has 8 kt of gold (perhaps 25% of world gold?), how can one keep track of what the Fed does with gold sales, as they have so much would they be able to (or do they) manipulate the gold / currency relationship at present?

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