Date: Tue Jan 04 2005 10:49
trotsky (HoldGold, 8:34) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
well it's true - gold is a great wealth preserver during deflations. offers better real returns than during inflationary eras actually.
but: "we will clearly and concisely explain why Prechter's argument is flawed and why gold and silver should indeed be big winners in any upcoming deflation."
well, where IS the 'clear and concise' explanation? the article doesn't provide us with one. instead it keeps asserting something without offering a shred of evidence. note that Prechter distinguishes himself by offering a very coherent narrative buttressed with reams of supporting evidence.
'gold and silver will...' - that's a pipe dream. gold, yes, but silver? if Prechter's deflationary depression becomes a reality, industrial demand for silver will collapse - and with it, the silver price. gold will be supported by its safe haven status and its role as a money that can't be subjected to default. silver does retain SOME monetary characteristics, but not to the extent that its price could withstand a large decline in industrial demand. otoh, a minimum of two thirds, and probably more, of the all the gold ever mined is held on account of its monetary role ( 1 third in official reserves, the remainder in private hands ) .
note also: in a deflationary era, gold stocks are a better investment than gold bullion ( putting aside for a moment the 'last resort insurance' aspect of bullion ) . this is because their product will at least hold its nominal value, or even experience a slight increase in it ( amounting to an appreciable gain in real value ) , but their input costs will decline.
Homestake Mining's performance between 1930 - 35 is a good example for this - with the nominal gold price fixed, the stock went from $70 to $550, while paying out enormous ( by today's standards ) amounts in dividends. its costs of production fell throughout the period.
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