I can't believe not one of you guys have brought up the other argument. Gold does NOT like deflation. We are in a deflationary environment at the moment, although I seriously believe that will do a 180 once the global economy stabilizes, and we keep spending like mad anyway. But for the time being this a very good argument to keep gold moderated in price. Personally, I would not be short for more than a few days at a time, but I keep a deflation watch on at all times. Long term, I am with the bunch of you guys, but need to see the $ seriously hammered at the same time, which I believe will happen when inflation goes crazy, but not before. Maybe 2010? May approach previous highs before then, but I doubt we break em (gold). There is also the possibility of a US default down the line. Current debt levels cannot continue forever. Hard as hell to predict when this will happen however. Won't see much evidence ahead of time I bet. It will unfold really fast when it happens. That is when ya want to have a gold position on, as well as long any major foreign currency.
Good points, Jayford. But what deflates slower in a deflationary environment. Ie holds its value better relative to.....? Gold? T-Bills? Commodities?
You can count on that part at least. If the fit does really hit the shan, you won't hear about it on the news. You won't hear about it from politicians. You won't hear about it from industry execs. Not at first, anyway - not until it is common knowledge. The initial realization will come from observing things like market action or strange long lines at the banks or daily increases in prices at the supermarket.
I've heard various rumours that the bogeyman is massively shorting gold futures so that the tooth fairy can buy physical at depressed prices and horde it in an imaginary vault. I'm not sure how true these rumours are though but its something to think about.
My canary in the coal mine is Britain. They will default before the US does. If the UK defaults, short term $ will rally, but longer term its a really bad omen. That's when I move out of dollars in a major way.
The Dear Leader, McF*ck has declared that Britain is best placed in the world to ride out the downturn (recession has been eliminated from the English language by the Ministry of Truth aka al Beeb, likewise tsunami is now to be referred to as surfs up). Britains debt is lower than every country in the world because PFI, Northern Rock, Bradford and Bingley and civil service pension liabilities are off balance sheet though McF*ck was amazed to discover that the banks had off balance sheet debts. So get borrowing because everything is just rosy.
I am going by experience, not charts back to the depression. In my experience, gold rallies for inflationary expectations or flight to quality. It is NOT a supply and demand issue except when a central bank starts dumping. That is always short lived however. Perfect case in point was the crash of 1987. My partner at the time started buying large amounts of gold, nearly maxed out his margin in fact. Guess what happened. Gold got crushed. A crash is deflationary by definition, and this trumped flight to quality. Almost put the poor guy out of business on one trade. By the time he got over "deer in the headlights syndrome" the damage was done. I've experienced this on smaller scales many times. Anyway, I am a gold bull longer term, but neutral short term. Just day trading it for the most part. Actually short Deece gold as I write this at 8:30 PCT. sloppy action though.
None of us in the US have lived through a currency collapse before. The worry in my mind is not the deflation, but rather all the stimulus being pumped in to try to stop it. Some day the piper must be paid. I agree though, that the panic point is not the time to be trying to buy.