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To: AllansAlias who wrote (47909)	7/28/2002 4:08:08 PM
From: KyrosL	Respond to of 209892

Speaking of deflation, the DJ Utility average is at roughly the same levels it was in 1982, if one adjusts for inflation. Kyros

To: AllansAlias who wrote (47909)	7/28/2002 4:13:34 PM
From: Joan Osland Graffius	Read Replies (2) \| Respond to of 209892

Allan, I have been struggling with the price of gold and deflation. If the rest of the world starts to worry about US deflation they will dump our bonds. At some point in time our trading partners will quit lowering the prices of their goods. I think we are in uncharted waters with the large trade deficit, government debt at all levels, corporate debt and personal debt racked up during the 90's. If the world dumps our bond interest rates will go through the roof and the US$ should tank under these conditions. With gold being sensitive to country currency fluctuations gold should be ok in the US and probably have lower prices in other countries relative to their currency value. Just trying to think through possible scenarios. Joan

To: AllansAlias who wrote (47909)	7/28/2002 5:18:19 PM
From: marginmike	Read Replies (1) \| Respond to of 209892

also interesting is the price of oil stocks in light of fairley good oil prices. XLE and XOI trading near 98 levels with oil 10 bucks higher?? Only argument there against deflation is CRB action latly.

To: AllansAlias who wrote (47909)	7/28/2002 7:07:40 PM
From: NOW	Respond to of 209892

That is Richard Russels hypothesis on gold right now: the fall is signaling deflation and he thinks AG would be happy to see gold rally here...I dont know about that though given the supposed massive shorts some key players in the credit bubble are carrying...

To: AllansAlias who wrote (47909)	7/28/2002 11:36:23 PM
From: whydididothat	Respond to of 209892

I'm glad to see some discussion today about this inflation/deflation question. It's odd that two entirely opposite outcomes could be so mystifying to us all. I've been long gold, short the USD and short the long bond in equal proportions all year ... doing quite well even with my bond shorts underwater ... until the gold selloff last week. So here I am wondering if this is a time to argue with the market or not. I've read the viewpoints about the coming financial collapse and deflationary scenario and find them believable. However, I'm going to throw out some evidence in support of the inflation scenario. I would like to hear from those who find either flaws or truth in this evidence. After all, it's not about being right, it's about getting it right. 1) I think that the bond market is a more reliable indicator of interest rate trends than gold. While bonds can be "falsely" pushed upwards by "flight to safety" in an unstable market, gold prices are intrinsically volatile and influenced by a host of real, and probably, man-made events outside of future inflation/deflation. I still see a clear topping pattern in the long-term treasury chart: stockcharts.com[w,a]meolyiay[d19900728,20020728][pb50!b200!b10][vc60][iut!la12,26,9][j4943233,y]&listNum=1 (is that a valid wedge going all the way back to 1993? -g) We have overlapping tops with marginal new highs and negative momentum divergences going back to 1998. 2) Then there are the commodity indexes which basically show the inverse of the long-bond chart, supporting the inflation hypothesis: stockcharts.com[w,a]meolyiay[d19900728,20020728][pb50!b200!b10][vc60][iut!la12,26,9][j5037968,y]&listNum=2 (Interestingly, the monthly stick on the CRB looks like a reversal stick, perhaps forecasting a move on the CRB back towards support as drawn by the blue horizontal line.) My best guess, using TA alone, is that when the equities markets cough up some more hairballs, gold and the commodities will move down to test support, while the long bond will move up further to test resistance ... creating more commotion between the deflationites and the inflationites. But looking out further (6-12 months from now) all of these tests will fail with a drop in long bond prices (ironically for those seeking a safe haven in long bonds) and a rise in commodities and gold. It would be wonderful to see how wave theory, cycle analysis and fib retracements applied to these charts, but I'll need some help there. Just thinking out loud...carry on.

To: AllansAlias who wrote (47909)	7/29/2002 10:24:52 AM
From: reaper	Read Replies (3) \| Respond to of 209892

if i may add to the gold, inflation and deflation debate... i am coming to believe that gold is not a signal of inflation or deflation. Larry Summers (who i pick on a lot because he has become so political but who is IMHO a certifiable economic genius) back in 1988 wrote an excellent paper ('Gibson's Paradox and the Gold Standard'; sorry no link) that argued that the relative price of gold was NOT driven by inflation or deflation but was instead driven by (and is the reciprocal of) the real rate of return from the capital markets (i.e. alternative investments). A gentleman by the name of Peter Palmedo (see www.svgold.com) has picked up the baton on Summers' work and written an excellent piece 'The Behaviour of Gold Under Deflation' svgold.com The long and the short of it is that these gentelmen would say that the recent strength in the price of gold is not about the markets signalling deflation or inflation, but about the markets signalling lower real returns from financial assets (i.e. my 'asset deflation'). Mr. Palmedo believes that in a world of 0% real returns from capital markets that gold will appreciate roughly 17% real annually. It is also worth noting that Summers believes (from his 1988 paper referenced above) that the long-run inflation-adjusted equilibrium price of gold (in today's dollars) is +/- $500/oz. So basically being a holder of gold is not about whether you believe in inflation or deflation but instead what you believe future REAL returns on financial assets are likely to be. Thus I am a (small; and recent) gold investor although I am also a deflationist. To give credit where credit is due, many thanks to Barton Biggs at Morgan Stanley for pointing out Mr. Palmedo's work in a recent research piece. Cheers