Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: regli who wrote (20654)	1/6/2005 10:28:59 PM
From: SouthFloridaGuy	Read Replies (6) of 116555

I cannot reconcile deflation and gold rising at least in the short or even intermediate term. The yield curve is not an indicator of performance, but rather an indicator of monetary policy. It is more probable that gold would rise under loose monetary policy than tight so it would take a flattish or inverted yield curve first before we get the subsequent rate cuts and then the speculation in gold. To the deflationist gold bugs, with all the Japanese savings plus the deflation they have seen, why hasn't gold risen during their turmoil? They had enough money to finance our lifestyles and a tech bubble, but not enough to move "scarce" gold? In history, there are very few times that gold rises and it always revolves around fear and loss of faith in the "system". But those are one-off events that occur 1% of the time. The only way faith will be lost here is if we lose faith in the banking system. Assuming no hidden derivative monsters, I don't think that will happen for a long time (but I do think it will eventually happen); the Dow would have to be under 5,000 at that point. Still a ways away! I totally admit I could be wrong and if a derivative reaper is hiding somewhere, then having some gold would obviously be prudent. But how much should that be before it becomes a cash flow drain and why not in interest bearing US T-Bonds which would see a flight to quality anyway? Why not cash under the mattress because certainly the value of money would rise in such an environment? Gold is not oil. It is not necessary for our day to day lives like food or oil. Hence only until the slope of its demand curve changes, will it really become an outperforming investment; until then, you could probably make more money speculating on cyclical bull markets in technology. I mean seriously if I were out of work and hustling for some dollazz, owning gold would be last on my mind! Thank God I work in the "Alternative" Investment industry. Contrary to James Grant's writings, our bubble should last so long as the yields from other assets are pathetic.

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