Gold's Performance in a Deflationary World

R

ringledman

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Hi,

Can anyone provide a historical perspective of Gold's performance in a deflationary world?

Whilst inflation is no doubt on its way in the medium term due to the quantitative easing (sh*t ourselves printing presses on overdrive) policies of the world's central banks, how has gold performed in the deflationary world that is presented to us for the next few years?

I'm looking for good hard evidence from the past.

Cheers.
 
David McWilliams did mention gold recently as a hedge against possible hyperinflation:
Could Obama be remembered as the man who presided over the greatest hyperinflation ever?
http://www.independent.ie/opinion/co...t-1608220.html


Deflation led to a collapse in stock and property prices in 2008 but gold was up 6% in US dollars and by far more in most other currencies (9% in euros and over 40% in British pounds).

Importantly, gold also rose during the last bout of severe deflation in the Great Depression of the 1930s when Roosevelt revalued gold by 70% and devalued the dollar by 70%, from $20/oz to $35/oz. Gold was and is money and thus gold retained its value even better than dollars did in the Great Depression (as it did in 2007, 2008 and so far in 2009).

The notion that gold is a bubble is absurd and I know very few people – friends or family who know the price of gold in euros or dollars let alone how to buy it.

Would love to see a vox pop of that to really see how many people have actually bought gold – would say it is infinitesimal versus those who have invested in Irish or international stocks or property.

Wondering if we have a few stock brokers or other financial product providers on Ask About Money who continually feel the need to bash gold (without paying any attention to the facts).

All assets should be looked at now more than ever.

Diversify people !

 
I don't doubt that gold can fall hugely as all commodities are volatile but I don't see it as a bubble yet.

Very few investment / financial advisers recommend it as an investment yet. Very few people own it yet. It is still less than half its real value of the early 1980's peak.

I recall the economist article in 2003 calling the top of the property market some 3/4 years early. Bubbles can extend for many years longer than most people think.

Calverley (Bubbles & How to Survive Them) writes an excellent book on what constitutes a bubble in all sorts of assets.

We are not there yet with gold yet. No doubt we will at some point (probably when property starts rising) but this is many many years away!!

Cheers for the figures George Shaw. You have some good investment views.
 
Highly unlikely that any central banks will sell their gold in the current climate. Particularly in Eastern Europe where their currencies have been plunging in recent weeks. Indeed central banks internationally are becoming net buyers of gold again - notably the Russian Central Bank and the People's Bank of China.

Even if they dod sell some of their gold it would likely be swallowed whole by increasing Japanese, Chinese, rest of Asia, Russian and by investment demand internationally and particularly in Europe where demand is up massively:

Investors rush into gold coins
[broken link removed]

China gold investment triples in '08, India drops, Reuters
http://in.reuters.com/article/businessNews/idINIndia-38098120090219

In the economic downturn, gold shines ever brighter
http://www.independent.co.uk/news/b...wnturn-gold-shines-ever-brighter-1625981.html

"Demand for bars and coins rose by 87 per cent over the year, with a massive surge towards the end as global recession loomed. In the fourth quarter, demand shot up by 396 per cent – from 61 tonnes in 2007 to 304 tonnes in 2008. The sharpest flight to safety was in Europe, where gold buying rocketed 1,170 per cent to 114 tonnes in the final quarter, from 9 tonnes in 2007.
 
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