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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: glenn_a who wrote (49795)1/15/2006 1:56:49 PM
From: kris b  Read Replies (1) of 110194
 
Was it not the case in the last global deflationary collapse - i.e. the 1930's - that the price of gold held up well during the decade?

Here is the explanation of this fenomenon:

Robert R. Prechter "Conquer the crash"

"The fact the people "rushed into gold" in the early 1930s has been a mainstay of the gold advocates' argument. They rarely tell the whole story. I suspect that the reason that people bought gold then is that the U.S. government had fixed the price, at $ 20.67 per ounce. While everything else collapsed, gold was soaring in relative value, AND IT VALUE GAINS WERE GUARANTEED. Who wouldn't buy it? If the goverment had fixed the price of any other substance, people would have invested in that instead. Today, gold, like silver in the 1930s, is free to trade at the market price, which means that it can go down during a dollar deflation. I cannot guarantee that it will. I can only state that there is no good case to be made that history indicated otherwise."

Everybody would be buying tulips in deflation if government fixed its price. Right? Silver, which price's wasn't fixed, dropped from 60 cents/ounce to 25 cents/ounce, between 1929-1934.

I would like to add that gold miners' shares in 1929-1934 were doing very well because on one hand State fixed the price of their product, but on the other hand all their expenses were deflating with general collapse. Corporate nirvana.
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