The world's central banks are indifferent towards gold. They want it and they don't want it. Therefore, since they are the biggest factors in the market, you can expect that gold won't do much.
This depends on our FED. The FED has no special power over other central banks except the FED is final defender of the dollar and the dollar is the world's reserve currency. What we have here is de facto Bretton-Woods at the world central bank level, and the free market when the central banks are dormant. Irresponsible money management on the part of the FED would pull them out of dormancy. Outright sustained pumping would cause the dollar to substantially weaken outside of any economic or trade considerations. The world's central banks would have to protect themselves against an erosion of the stored value in the world's reserve currency that they hold. It's a matter of confidence which the FED must respect. I assure you that they do because they have no choice.
The locked in situation makes gold dead money. Like I said, it's Bretton-Woods reincarnated. A money manager would tell you that you have too much in precious metals. I don't think you should have any because it is too sophisticated of a game for anyone to play. You can't trade or invest in raw money successfully. I agree with your wife, because I don't believe the FED will engage in overt pumping. That's just my guess.
What we are in is an era of declining disposable income. It's useless to call this era deflationary or inflationary. According to the CPI we have long term inflation. The CPI has persisted upward without so much as blinking since 1932. The FED considers 2.5% inflation per year as acceptable.
On the other hand you have a world environment in which the machines are rendering the cost to produce anything close to zero, and so they are priced close to zero, and probably are worth less. So this is deflationary. The only thing that can resist this irresistible force is what humans can get away with ripping off each other by charging ever more for what they do. In the future this will be the way that structural inflation can return, but such a circumstance requires world labor solidarity, if it is to have any teeth. The world's central banks would have to resist the will to inflate by restricting the availability of money. However, that may not work because people may consider the world strike as a holy war against the hoarders of their rightful fair share in the capitalist dens. Then you are justified in holding gold and only then.
A direct deflationary "cycle" would not be tolerated by the FED. In contrast to the Japanese the FED would pump, push on the string, until something happened. Since something can't be defined, this circumstance is the greatest fear of the FED. They can pull on a string with complete confidence of the result because the US has been trained to be a demand managed economy. They can't push on a string though with much confidence. If fear among the populace is sufficiently high, the FED can create all the money they want, but it doesn't mean anyone would be willing to borrow it. We have had periods like this in the past like the early '30s or early '80s. |
