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Gold doesn't perform in recessions

secondrepublicsecondrepublic Posts: 2,619 ✭✭✭
in Precious Metals
LINK.

Some interesting points. I find this a lot more compelling than the usual conspiracy / manipulation theorizing. For the time being, we're in a recession and on a net basis, seeing deflation.

At some point, we will overcorrect thanks to the massive printing / borrowing by the government and see some real inflation. But that time is quite a ways off; in the meantime, we're seeing deflation and weak gold. And this makes sense. Logically, gold cannot be a hedge against both inflation and deflation. If it were, it would never decrease in value (even in deflation), yet it would always increase when there was inflation. That kind of have-your-cake-eat-it-too asset class just doesn't exist.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)

Comments

  • ProofCollectionProofCollection Posts: 6,050 ✭✭✭✭✭


    << <i>Gold doesn't perform in recessions >>



    And real estate and the stock market does worse.
  • DeadhorseDeadhorse Posts: 3,720 ✭


    << <i>Gold doesn't perform in recessions >>




    It has performed better through 2008 than anythng else I can think of.

    Given the clear premiums and great desire for it by even J6P these days, it looks like it's probably the best place for one's wealth.

    Recession or not.

    Even if it hold 90% of it's value, and it's done better than that since mid-summer, then it's far ahead of anything else.

    Demand remains strong and I don't see that changing come January '09.
    "Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose."
    John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
  • secondrepublicsecondrepublic Posts: 2,619 ✭✭✭
    Agreed gold has done better than most other asset classes. But a lot of the commentary around here and elsewhere has been hand wringing about why gold isn't up. There's your answer. Gold almost never goes up in a recession.
    "Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
  • ttownttown Posts: 4,472 ✭✭✭
    You have to look at the value of the dollar vs other currencies. If you look at the price of gold in other countries they are at near highs. When the dollar comes tumbling down gold will go up just like the 30's deflationary depression. All the markets are manipulated and right now to save Wall Street, PM's are getting a little extra to attempt to restore order in the market places. 2009 going to be a good year for PM's IMO.
  • ProofCollectionProofCollection Posts: 6,050 ✭✭✭✭✭


    << <i>Agreed gold has done better than most other asset classes. But a lot of the commentary around here and elsewhere has been hand wringing about why gold isn't up. There's your answer. Gold almost never goes up in a recession. >>



    We are not in a recession, we are in a depression, even if the talking heads don't say it.

    Regardless, this recession/depression is different than any in the past.
  • CertifiedGoldCoinsCertifiedGoldCoins Posts: 1,644 ✭✭✭
    Whatever gold does, I'd rather own it than some stock certificates that can become worthless any minute. Lehman Brothers wallpaper, anyone? image
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  • fcfc Posts: 12,793 ✭✭✭
    i have to admit i am impressed by how well gold has held up compared
    to other commodities. Silver and plat though... ouch. So gold appears
    to be the choice for 2009 and the others really could drag you down.

    But for me... 2009 will represent the time for I to buy stocks that
    i will keep for the long term. I want people scared silly and selling
    so I can get stock at rock bottom prices for companies that have
    good fundamentals. I am younger so your outlook could differ from
    mine depending on your age.
  • DeepCoinDeepCoin Posts: 2,781 ✭✭✭
    Gold is almost par with Platinum right now, 745 versus 765. Gold seems like a good place to park $$ for the short term.
    Retired United States Mint guy, now working on an Everyman Type Set.
  • COINB0YCOINB0Y Posts: 4,505
    It's a good thing we are in a Depression instead, because otherwise, I'd be worried!

    Sure would like to see a Chart of the Fiat $1 Currency's performance during the same periods!
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    Those buying great and cheap stocks today will be crushed in the next major takedown in the market (2009 or 2010). The correction is long from over. There will a nice rally at some point before March. But while fundamentals will say stocks are cheap now....they will become a lot cheaper before they make new all time highs many years away.

    Logically, gold cannot be a hedge against both inflation and deflation. If it were, it would never decrease in value (even in deflation), yet it would always increase when there was inflation. That kind of have-your-cake-eat-it-too asset class just doesn't exist.

    Of the last few major recessions and depressions, I'd say gold has held up most of the time.

    1930's check (gold stocks up 6X)
    1970's check
    1990's nope
    2000's check

    3 out of 4 ain't bad. And note that gold/miners performed the best of any asset class during the 1930's depression. So as long as the recessions are the stagflationary type, gold does perform in both significant recessionary and inflationary times. Let's also revisist the fact that govt has done everything it can to unseat gold since the 1971 fiat experiment began. Never underestimate the powers of the FED and Treasury to manipulate all markets. But it doesn't mean they will win, because long term fundamentals always rise to the top. Other than a brief bout of monetary contraction in 1955-1958 the FED's monetary policy has increased money supplies consistently over 95 years to produce a constant inflationary factor. Some times it's much more obvious though. In essence, we are nearly always in inflationary times...some worse than others (ie the 1970's and the 2000's). Assume a deflationary stance at your own risk.

    Logically gold can certainly be a hedge in both inflationary and recessionary times, esp when the FED lets the markets work unimpeded.

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
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