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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (5255)	12/13/2001 12:43:13 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 36161

Jacob, there's a study by Dan Ascani that shows that since the early 16th century, gold has been a far better deflation than inflation hedge. essentially, gold's purchasing power tends to increase during deflationary times. so it doesn't have to rally much in nominal terms actually. of course, in such cases it is far better to hold stocks in gold mining shares than physical gold. basically their revenues won't increase much in a deflation scenario, but their profit margins will, due to falling input costs (this is what happened with HM in '29 to '35 for instance). another aspect that is a positive for gold during times of deflation is that it is an independent monetary asset, i.e. it doesn't represent anyone's "promise to pay". in a severe deflationary crisis, some cash will likely shift into gold on the basis of that. also, since central banks can be expected (the proof is in the pudding, look at MZM and M3) to attempt to counteract the deflation by printing a lot of fiat money, and governments can be expected (see Japan) to engage in fiscal profligacy, gold will attract some funds that are looking for insurance against these tendencies. i'm actually not necessarily expecting a huge rally in gold, although that can't be ruled out. but even a modest rally, to say the 330 to 350 region would result in vastly improved profits for the producers, and their shares will reflect that. in fact, the rerating of the sector is already well underway. non US based companies like the SA producers report record profits recently, as their input costs in dollar terms have plunged.