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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: At_The_Ask who wrote (133790)	11/9/2001 6:36:19 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 436258

<<Im unsure if it would be better to trade gold for the bounce that must accompany the cure for deflation or for the debasing which may occur in the interim>> This point is admittedly a tough one, and my greatest misgiving about holding gold as the economy spirals into the deflationary abyss. Back in the day, Heinz was asked about this question (by me and practically everyone else who came onto the thread after me). His point was that gold (metal) held it's purchasing power going in and coming out of deflation, so at worst you "break even". However, historically, deflationary periods were accompanied by acute stress in the financial system, so typically gold far exceeds it's predeflationary value as deflation occurs. A "panic premium" as it were. In the 30's the fixed price of gold was actually raised by the government, in an attempt to devalue the dollar and reinflate. (Of course, private ownership of gold was outlawed, so it was a mixed blessing to the goldbugs of the day). Interestingly, the best performing stock of the 1930's on the S&P 500 was none other than Homestake Mines. One reason was the rising value of the metal, the other was reduced cost of production due to general deflation. Combined, they are POTENT forces for share appreciation! Of course, "this time it's different" and maybe that won't happen. But gold (physical and mining shares) make sense as a hedge on the ClownBuck and on whatever further harebrained reflationary measures BubbleBoy and the Congress come up with. I'm about 12% long physical and mining shares combined for these reasons.