Thank you for sending me your weekly e-letter. I enjoy reading them.
I have one question for all those who see gold price rising substantially. In an environment of general price deflation, if gold is a commodity, how can its price rise against all other commodities?
A case can be made that the dollar, while falling faster than other fiat currencies at the moment (as a result of it having risen faster in previous years), is still rising in value against commodity prices, except real estate for the moment, but that too will face deflationary pressure eventually. The entire global monetary system appears to be rising in value with regard to commodity prices, with the dollar still the strongest currency.
There are fluctuations in demand caused by market sentiments, but substantial changes beyond 10-20% in value among major currencies is hard to imagine. Gold has appreciated in value when viewed by how many shares of AT&T or GE an ounce of gold can buy, as has the dollar.
Henry C.K. Liu
From Richard Rusell (indirectly, via Le Metropole Cafe) :-
Getting a lot of questions about "How can gold go up if we're heading into
deflation?"If we go into net deflation, the mountain of total debt in the US is going to get "the big squeeze." I've seen it estimated that total debt of all kind in the US is around $38 trillion. That kind of debt in deflation is like your shoe coming down on an over-ripe orange. In a phrase, it's going to be messy.
People will be looking for something of value that has no debt against it. What could that be? Oh, I remember, it's called real money otherwise known as gold.
Furthermore, I foresee competitive currency devaluations coming up as nation after nation devalues its paper money in a mad scramble for exports. All currencies are measured against gold. Gold is the rock, while paper currencies come and they go. As the various currencies of the world lose their value, it will take more of each currency topurchase an ounce of gold.
Right now you can buy a bright shiny Krugerrand for around 320 US paper Federal Reserve Notes otherwise known as dollars (I know because I bought another batch of Kruggies last Thursday).
That's it for Saturday,
Your faithful servant,
Richard Russell
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