Alex Wallenwein: Will Deflation Crash the Gold Price?

The following is an excerpt from Alex Wallenwein's witty missive, fittingly titled "Fed-Ache".

Will Deflation Crash the Gold Price?

There is probably enough that could be written on this topic to warrant an entire article, maybe even a book, but the question also has a very quick and easy answer. The answer is "no" because gold is primarily money, not a commodity. It is good for almost nothing except for making jewelry and for using it as money. That's why it's so valuable. Even jewelry is a latent form of money, if you think about it.

As the money stock decreases during a credit deflation, it becomes more valuable relative to goods and services, and so its buying power increases. Non-western people know this. Westerners will have to re-learn this lesson the hard way. They will keep their money in interest-paying loser-investments because they believe that cash and gold are "non-performing" assets that earn no interest.

In other words, in a deflation, "cash is king" - and gold is cash. In fact, gold is better than paper cash. That should tell you where to focus your investment dollars.

Got gold?

Alex Wallenwein
Editor, Publisher