August 5, 2012

Gold will Outperform Equities and Housing in a Deflationary Scenario

This week let us share an extract from a very insightful article on the deflation and the role of gold in the situation of deflation.

Credits go to Julian D. W. Phillips.

The definition of 'deflation' is:

While inflation erodes the value of money, which progressively buys less and less per unit, deflation makes money worth more. That makes people and businesses less likely to spend it - consumers because they expect even better deals if they wait, and businesses because it's less profitable to produce goods or services that will bring a lower real return. These factors can feed on each other to produce a downward economic spiral, as happened in the Great Depression.

As brought out in her recent article, Rhona O' Connell pointed out that in "The Golden Constant", written by Roy Jastram over 30 years ago and recently re-released including fresh material by economist Jill Leyland, tells us that in the U.S. there have been three recorded deflationary periods and gold increased its purchasing power in each of them, by between 44% (1929-1933) and 100% (1814-1830).

Please note that this was at a time when the gold price was fixed and unable to rise. Nevertheless, the purchasing power of currencies fell against gold. We learn from this that while governmental controls do work, they work only up to a point then are overwhelmed by market forces. (...)

The forces at work in the financial world now are pointing towards a coming increasingly deflationary picture. (...)

The World Gold Council did some useful work on this through Oxford Economics who found that gold is useful to investors in various economic scenarios, not only during high inflation periods. The research found that while deflation leads to a rise in the US dollar it maintained that the destructive impact of deflation on traditional assets was likely to outweigh the US dollar effect and provide a boost to gold.

For more details go to: http://www.goldforecaster.com/

In Gold we Trust!
Yours,
GBULLION team

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