Fleckenstein on gold.................
More on gold... I've received some e-mail recently about gold, asking what it's going to do and whether inflation or deflation is better. I'll reiterate what I've said many times in the past: Gold is an asset that people buy when they lose confidence in their leaders or their currency, they fear for their future or things like that. It's a low-confidence-in-the-authorities type of asset.
It's difficult to believe that gold will rise when the stock market is going ballistic. I hadn't been bullish on gold until the stock market broke last August. I think that gold will do well only after people begin to see the stock market as risky - that is it not a risk-free place to make money. I don't think it makes a heck of a lot of difference whether it's deflation or inflation, because if we have deflation in this country it will be fought by printing money.
The bottom line is, our currency is going to be very weak, and at some point as the world decides it doesn't want to own dollars, it may decide to buy gold. The case for gold is this: It's an alternative form of money, it is cheap relative to the cost of production, and it is universally hated and "under owned." So it's an attractive risk-reward type idea. Will it work? I don't know. But it's a hell of a lot better risk-reward trade than the stock market. Now, is it going to be a good idea for the next 15 minutes? No. It's an idea that might work over the next couple of years. But it ain't going to work until stocks stop going up for the reasons I already described.
It is interesting that precious metals (silver, gold, palladium and platinum) have held up much better than the industrial-land agricultural commodities. They are starting to differentiate themselves as stores of value as opposed to just industrial commodities. How they do going forward remains to be seen, but I think there is a differentiating process starting.
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