Gold prices

[Pete]

A friend has a lot of money in gold and gold stocks, and she is concerned about recent declines. A couple of weeks ago I advised her to hang tough because of fundamentals, but I'm starting to second-guess myself.

Isn't deflation a risk if we have a lot of bank failures that are not protected by the federal government?

Here's a long-term price chart. What do we have, a primary bear market in gold, or the bottom of a hellacious correction?

[Pete]

Hmm, just found this great thread about our current situation I will digest later. It seems to address my question:

http://www.ronpaulforums.com/showthread.php?t=155398

[Acala]

There may be deflation in the short term as a result of the collapse of credit markets. But the long term still looks inflationary to me.

Government revenue at all levels is in decline, and will continue to decline as unemployment depletes income tax roles, decline in economic activity depletes sales tax revenue, and decline in home prices depletes property tax revenue. At the Federal level the shortfall will be met by borrowing. At the State and local level, this will be met by Federal bailouts (this will begin over the next few months) paid for with Federal borrowing. This borrowing will increasingly be from the Fed as other lenders shy away. This borrowing is inflationary.

Government bailouts of banks (already underway) and big corporations (coming soon to a theatre near you) will also be paid for with inflationary borrowing.

The cost of Government domestic programs will continue to rise, culminating in the deluge of claims on the SS and Medicare systems. These increasing cost will be paid for by inflationary borrowing.

The Government will continue to stir up trouble in foreign lands so military costs will continue to increase, as will foreign aid like the $1 bilion to Georgia. This will be paid for by inflationary borrowing.

Foreign holders of dollars will begin to spend them here as inflation starts eroding their value, dramatically driving up domestic prices in goods and assets.

Foreign holders of US notes, under pressure from inflation, will redeem them rather than rolling them over, forcing the US government to borrow money to pay them off.

All of these forces are inevitable, highly inflationary, and will far outweigh any deflationary influence of a depressed credit market.

And the foregoing scenario discounts completely the vigorous attempts by the Fed and its cohorts to jumpstart the credit market. If they have some success, there will be even more inflation.

The dollar is doomed.

[Pete]

Very pithy analysis, Acala, thanks VERY much.

[jonahtrainer]

A friend has a lot of money in gold and gold stocks, and she is concerned about recent declines. A couple of weeks ago I advised her to hang tough because of fundamentals, but I'm starting to second-guess myself.

Isn't deflation a risk if we have a lot of bank failures that are not protected by the federal government?

Here's a long-term price chart. What do we have, a primary bear market in gold, or the bottom of a hellacious correction?

This is just a wicked correction. We have entered a Kondratieff Winter and capital is for the most part stopping short of gold so far. Hope and Trust in the dollar will be lost though and then the capital will go even further down the pyramid.

[freelance]

A friend has a lot of money in gold and gold stocks, and she is concerned about recent declines. A couple of weeks ago I advised her to hang tough because of fundamentals, but I'm starting to second-guess myself.

Isn't deflation a risk if we have a lot of bank failures that are not protected by the federal government?

Here's a long-term price chart. What do we have, a primary bear market in gold, or the bottom of a hellacious correction?

Look at November '05. People were puking their guts up. I'm NO expert, but I don't think gold is anywhere through with its run. Do a search on Bloomberg + gold + %5000.

[freelance]

Gold smackdown started right on cue this a.m.

http://www.kitco.com/

SSDD

[Dr.3D]

Gold smackdown started right on cue this a.m.

http://www.kitco.com/

SSDD

That's nothing like they are doing to silver. But true, SSDD.

[youngbuck]

Yea I was going to mention, as Acala pointed out, that I've read before the inflationary tidal wave hits, there will definitely be some pronounced deflation. Probably during this time would be a good time to buy things that you know you'll need or want before the inflation. If we get lucky, ammo prices will come down too

[Bruno]

That's nothing like they are doing to silver. But true, SSDD.

Good. Time to buy more.

But how can this be anything other than price manipulation when the U.S. economic situation looks so bleak and after Greenspans comments?