BGR,
Here's the reason this discussion about the yen/gold is another straw man.
When the Nikkei collapsed and the Japanese economy along with it, money didn't leave Japan and go to gold. It fled to other equity markets or to cash.
But if the US equity markets crash, and the usd along with it, all paper will burn. Where then will money flee? It won't flee to Japan via the Yen. It won't flee to Europe. They will be shaken as well. Hard assets will be the only refuge, of which gold is queen, although I think the biggest % gainers will be Ag and the pge.
Demand for commodities, even apparently necessary ones like DRAM and oil will decrease. A deflationary period will ensue, yes. But the biggest deflation of all will be paper!
So in terms of speed and magnitude of deflation, paper assets will burn far faster than hard assets, leading to a relative rise in hard assets in comparison to your paper ones. That is how a deflationary depression can destroy the net worth of everybody, and reverses the relationship between fiat and real. But you don't need a depression to reverse this relationship, you just need declining oil fields - more on that later.
The purest interpretation of this would lead you to short paper gold, because remember - All paper will burn. It doesn't seem possible now that paper gold is not the way to play this, but imagine if overnight the cost of mining gold increased 4 fold and the price of gold tripled. What do you think that would do to you a miners margins? (BTW, ike, if you're reading this, that's why I like FN). I doubt the mining companies will be able to pay for the fuel they require, the electricity, or the raw materials by exchanging gold. Nor will they pay their workers with bullion. Companies who have operation in countries whose currency is linked to the usd - most of South America - will see deterioration in their currency an order of magnitude greater than the usd. In fact, a collapsing dollar will destroy South America, unless it figures out a way to link its precious metal production to it's currency overnight - not likely, especially since most of the bullion banks they deal with settle in the usd, not euros.
More ramblings.
Message 13833514
BTW, I realize that you are on the gold trail as well. -g-
And as for your previous question about Fed monetary policy... You're guess about the speed of the effects of a change in rates seems about right - but the speed of the effects of the changes in the money supply are faster. Besides, the whole thing is so fragile that any move, however small, can have enormous, unforseen consequences. |
