Rationale For Owning Gold In The Coming Deflationary Bust
Gold Silver Worlds
September 14, 2013
People mostly think that gold protects purchasing power during periods of inflation. While that is true, it is not the only truth. The investment narrative does not consider gold’s value during deflationary periods.
Why should anyone be concerned about deflation when the monetary base of key Western economies is inflating like never before in history of mankind? The short answer is that deflationary and inflationary forces are currently working simulataneously in our economy. At the basis of this phenomenon are boom-and-bust cycles, which are driven by central banks (prohibiting the proper working of free market forces). Loose monetary policies of central banks do not allow a recession to clean out the inefficient resources and investments in the economy, resulting in intensifying deflationary forces.
Jim Rickards recently has explained deflation and inflation this way:
“You have deflation which is perfectly natural and what you would expect in a depression. A depression means among other things that people are deleveraging; when you deleverage you sell assets; selling assets pushes prices down; that makes things worse and prices go down more. Against that, we have inflation from the Fed money printing. These two forces are pushing against each other: deflation and inflation at the same time. It hasn’t been possible to estimate precisely, but in rough numbers we might have 4% deflation and 5% inflation at the same time which net out to about 1% inflation in the CPI.”
Investor and economic scholar Marc Faber takes the deflationary idea one step further. In a recent interview (see video below) he appears convinced that a deflationary bust is inevitable. The only uncertaintly appears to be timing. In his own words: “It could happen tomorrow, in five or ten years time.”