Buying in to Gold

mydinero

sabretoothtigger wrote: »

Deflation is the fall of asset prices I think. Its not happened in a long time because it means like earning free interest on your money. Like houses had deflation, if everything had it that'd be the situation.
Apparently deflation can still mean economy grows just like inflation does

"Deflation is a contraction in the volume of money and credit relative to available goods...

"When the volume of money and credit rises relative to the volume of goods available – which is the definition of inflation – the relative value of each unit of money falls. This makes prices for goods generally rise. When the volume of money and credit falls relative to the volume of goods available – which is also the deflation definition – the relative value of each unit of money rises, making prices of goods generally fall. Though many people find this concept difficult, the proper way to understand these changes is that it's the value of units of money, which rise and fall, not the value of goods...

"Some people are beginning to see how a deflationary spiral works. As explained in Robert Prechter’s best-seller Conquer the Crash, debtors are forced to sell all they can, even their best assets, to raise cash and satisfy creditors. That’s one reason why gold and silver prices do not rise in a deflationary spiral. When the sub-prime mortgage market crashed, guess what: other bonds, including supposedly safe municipal and corporate bonds, also fell...

"Even if most price declines are due to forced selling, that selling in turn will decrease the total value of investments, which will curtail individuals’ and companies’ economic activity, which leads to an economic contraction, which will stress the issuers of such bonds to the point that they cannot make interest payments or return principal...

"Despite this description, a deflationary spiral is not linear. When the debt burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money. Defaults rise because they can't pay off their debts. Default and the fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further...

"Just as the previous boom fed on optimism, a deflationary spiral feeds on pessimism. The resulting cascade of debt liquidation often results in deflationary depression. To raise cash to pay off loans, borrowers will desperately try to sell everything that’s not nailed down, including stocks, bonds, commodities, real estate, even art and collectibles. Prices for these assets plummet..."

The above rings true to me when I look around and see what's happening with the current financial crisis. So gold may not be a safe investment if it does turn out that we go into a deflationary depression.

(I have borrowed the above from Elliott Wave International, which I think has the best definition/description of deflation and its effects that I've come across. You can go to their web site's home page and scroll to the bottom to learn heaps more about deflation.)

cgnao

Update: this is just the beginning. Roger, over.
http://www.telegraph.co.uk/finance/personalfinance/investing/gold/7668425/Sterling-gold-price-hits-new-high.html
Sterling gold price hits new high Published: 7:15AM BST 03 May 2010
The gold price has hit a new all-time high in sterling terms as concerns about a hung parliament in Britain and the debt crisis in Greece weighed on the pound.
Gold hit £773 an ounce last week, a rise of around 25pc over the past year. Bullion also surged in dollar terms too, hitting $1,181/oz on safe haven demand.

DiggerUK

cgnao wrote: »

.....Gold hit £773 an ounce last week, a rise of around 25pc over the past year......

Interestingly, gold in UK has risen about 230% from when the thread was first posted, and gold was 230GBP an ounce.
http://www.lbma.org.uk/?area=stats&page=gold/2004dailygold

Your interest in gold has not abated either it seems.

cgnao

*** UPDATE ***

PRECIOUS METALS: Gold Breaches $1,370, Seen As Currency Hedge
http://online.wsj.com/article/BT-CO-20101013-711124.html


London PM fix: 862.439 GBP/ounce.

10y chart in GBP:



*** END ***

blinko

i expect gold and comomodities to continue to rise nothing to show otherwise at the moment i excpect a high of 1650

leahciM

It seems that with more QE on the way, Gold will only go higher.
On the other hand, equities are looking pretty cheap now, especially as bonds yields are lower than equities.

cgnao

When it is all said and done, £1000/ounce will seem very cheap.

This is 100% correct, guaranteed.

http://www.bloomberg.com/news/2011-07-18/europe-commodity-day-ahead-gold-climbs-to-record-above-1-600.html

Gold Climbs to Record Above $1,600 on U.S., Europe Debt Concerns
Gold rose to a record above $1,600 an ounce as debt concerns in Europe and the U.S. boosted demand for the metal as a protection of wealth. Bullion in euros and pounds rose to all- time highs and silver topped $40 an ounce.

IronWolf

GTG wrote: »

The dollar is tanking and China is a creditor nation with massive cash reserves and stock piles of commodities. The western world or at least the US the UK and some of europe are massively in debt to a large degree to foreign bond holders. The wealth and power is shifting to the east.

China is indeed a creditor nation, and they are the last people in the world that want to see the dollar tank. They own huge amounts of US debt and dont want that erroded away. Its also why the US probably wont have much trouble getting more debt from them as they dont want to devalue the bonds they currently hold by refusing to buy new issues and bringing down the price.