Vox Rationalis

Time to Revise Our Gold Expectations

I think the correct play here is not long gold, but short US Treasuries. Think about it - today, 4-week treasuries sold at 0.00%. Nothing! There is almost literally only one way for Treasuries to go. And suppose the Fed and Treasury get it just right, removing liquidity as the banking system restart lending, such that there is no inflation? What happens to gold if there's no rampant inflation? Might go up a bit, might go up not at all. As the economy improves, and as risk aversion lessens, money will move into more risky assets, and away from Treasuries, causing them to lose value. And as the battle shifts from deflation to inflation, interest rates WILL go up, and Treasuries will become less valuable.

User XXX wrote: "You deflationists out there, please tell me what prices are going down? Okay, gasoline. Name something else. Food? Not! Any other "necessities&quot.... Not! So, where is the DEflation?"

As overall leverage has dropped, there are fewer dollars chasing about the same assets, and about the same level of production. As confidence has dropped, there are fewer people spending money in the marketplace, as people are tending to save more. This is a simple supply/demand problem. If there are fewer dollars in the market and the same amount of stuff, the dollars become more valuable in terms of the stuff. Prices decline.

Sure, it's theoretical, but there are already signs of it. Since the summer, orange Juice at Costco is down 5%. Rotisserie chickens are down 10% (I believe Costco prices fall faster than most if not all other stores). All commodities have dropped significantly, and the prices are working their way through. As for financial assets and real estate - do I even need to say it?

Time to Revise Our Gold Expectations

Georealist: "As for currencies..they are ALL depreciating...the wannabe analysts who don't know that really should check the most recent liquidity and interest rate move by EVERY country."

I love people who know everything. Tell me...depreciating against what exactly?