Will gold initially fall when "it" hits the fan

feo1966
By feo1966 on Sun, Apr 21, 2013 - 6:24pm

Hi all.

Help me understand this.  We have money printing all over the world, which should be inflationary.  But it isn't.   

 The on-going deleveraging is deflationary.  Japan has been stuck in deflation for years and it doesn't seem to matter how much money they print.  

Yes, I know the CPI numbers are manipulated, But the amount of inflation I see is WAY less than the % increase in the amount of money. The charts here sharp drop in gold during some periods.  

If I recall, this was partially because lots of money was flooding to USD since it was considered the best fiat currency.  I also recall that it was due to people having to sell anything to cover margin calls for stocks, including gold.

http://www.alhambrapartners.com/wp-content/uploads/2013/04/ABOOK-Apr-2013-Gold-Prices-08.jpg

http://www.alhambrapartners.com/2013/04/15/we-have-seen-gold-prices-act-like-this-before/

I'm still struggling with how gold can be good for both inflation or deflation.  I really think we are in for a roud of serious deflation first when everything implodes.  

If we do get into serious deflation, I suppose banks will be failing.  But gold is also probably going to drop when this happens.  

And I've got a few 1-oz gold coins in a safe.  Would it be of value to have some cash outside of the bank as well?

I've got 35% of my retirement funds in BMG Bullion (fully allocated)

I am struggling with if I should keep cash outside of the bank or buy more physical coins. I just can determine if gold will initially drop or spike.

I know things are going to get bad.  I just don't know if cash or gold will be better.  Maybe a bit of both.

Any thoughts?

 

 

2 Comments

Westerntiers's picture
Westerntiers
Status: Member (Offline)
Joined: Apr 21 2013
Posts: 1
Fall in gold price

There appears to be no 'safe' haven anymore and no consensus as to whether the way out of the financial mess we are in will be inflation or deflation. I agree with feo1966 as to how gold can cover both situations. Perhaps Mr. Masterson could respond?

wisechoices's picture
wisechoices
Status: Member (Offline)
Joined: Dec 16 2012
Posts: 1
feo1966

We can never know the answer to the question you posit, too many variables in this complex system.  If you really believe bank failures will happen then you want your money out.  Even sub FDIC thresholds could suffer as there is not enough funding to cover all the accounts should the ultimate doomsday condition appear.  If you decide to exit the system, you have to decide where to keep the cash, safety, and not adding personal risk by keeping it at home are some considerations.

Regarding the money printing vs apparent lack of inflation, my understanding is that the main culprit is velocity, which is at historic lows.  They are printing, but the money is not moving around the economy, it is parked. So deleveraging , will result in lower prices  accross the board even with money printing, if velocity stays low.  If however, people get scared of potential inflation, then velocity should go up, and real assets should appreciate, esp. PM.

Diclosure:  I am not an economist, but have been around the block a few times.

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