alajac

Why Gold, If Deflation Is the Threat?

"THINK OF WHAT YOU'RE SAYING,
YOU CAN GET IT WRONG
AND STILL YOU THINK THAT IT'S ALRIGHT..."

The move in gold has been entirely due to dollar weakness, in euros gold has done squat. In a deflationary period (note: in the Detroit area we are getting bigtime deflation in grocery prices, but then we actually have grocery store competition in this region), the value of the dollar will go up, hence, gold will go down. Period. At some point the trends will reverse, but gold could be a lot lower by that time and never get back to these gold prices. In any event, I would not buy gold (or miners) until it at least is making new all-time highs (or is selling for less than $400/oz).

In 2006 I was sending out warnings which compared the current Nasdaq to the Dow of the later 1930's, now I see that analysis all over the place. Upon further cogitation, I have concluded that the 1938 comparison only goes so far (even though the percentage changes of the drop and the snapback rally have been almost identical to the Dow of 1938): the rest of the story is that the market is ALSO going to act like the market of 1930, where the snapback rally was followed by a drop of another 80% from the new "lower high"; the analogy I've been using is that of a rollercoaster, where after the first dip the cars get towed up a big hill to the top of the REALLY BIG DROP!

Now the real fun begins.