Global Currency Crisis & Gold – What’s Really Going to Happen in 2011 – 2012

Following on from the first 2 parts in this series: Whats really going to happen in 2010 Whats going to happen in 2010/2011 – part II Another great writer and analyst makes it into our categories section, Bob Chapman of Global research with a seminal must read piece outlining the road ahead towards a new [...]

Is Gold a Reasonable Investment?

by admin on 07/10/2009

So is it? – from the Market Oracle

This essay rounds up arguments for gold as a reasonable investment.

China

Commentators such as Ambrose Evans-Pritchard and Byron King argue that China’s hunger for gold will put a floor on gold prices.

Specifically, they argue that China will “buy the dips” in gold prices, effectively putting a minimum on how low gold prices can go.

Inflation

It is conventional wisdom that gold is a hedge against inflation.

For example, noted inflationist John Williams advises buying gold.

Axel Merk argues that gold is a better buy than TIPS as an inflation bet.

And Taleb advised buying gold in May, since currencies including the dollar and euro face pressures.

Deflation

If gold does well during times of inflation, it makes sense that it would perform poorly during deflationary periods.

But Examiner.com points out that such an assumption is probably untrue.

Specifically, as Examiner.com writes:

Eric Sprott – who manages $4.5 billion in assets, and correctly predicted in March of 2008 a “systemic financial meltdown” – says:

“I believe no matter what environment you’re in – deflation or inflation – people will run to gold,” Sprott said. “Gold is proving exactly what we all would have expected, that in almost any environment, it’s a go-to asset.”

And investment analyst and financial writer Yves Smith argues that gold does well during both periods of deflation and high inflation. She argues:

Historically, gold does well [in] hyperinflation and deflationary [periods]. Gold does poorly under more normal conditions, and gets hammered in disinflationary conditions, a falling but positive rate of inflation.

Analyst Adrian Ash argues that gold’s value actually increases during periods of deflation even if its price drops:

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