Gold and Deflation: History Shows That Conventional Wisdom is Wrong!

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(H/T The Sovereign Investor Daily)


All the lip-flapping these days in Europe is about deflation. And if you’re listening to it — and even if you’re not listening to it — you should buy gold.

Pundits are worried that because the European economies have slowed and prices have retreated a bit, deflation therefore is stalking the Continent like Jack the Ripper stalking London’s East End. Sweden fanned the flames last week when that country’s central bank cut interest rates to 0%. Not near-zero, like in the U.S. … literally, 0%. It did so even though there is no indication that deflation is anywhere near the Viking land.

In that world, gold — supposedly — is odd man out.

History, though, tells a different tale. It tells you that gold is the asset to own if you believe deflation is real.

But Wait, I Thought Gold Was Going Down…

It’s not easy being a gold investor today. As I write this, gold is off more than $30 per ounce to less than $1,200, its lowest level since 2010. It has the gold haters saying “I told you so!”

But this is playing out exactly as it should. Gold should fall when the dollar rises. It’s the necessary proof that the two are on opposing sides of the same see-saw — and that gold will rise again when the dollar resumes its decline … which it will. The dollar is rising these days simply because the Fed is soon to raise interest rates even as Japan overnight launched a new round of stimulus and as the European Central Bank brings euro rates down. That’s a temporary state of affairs.

Also temporary is all this jibber-jabber about deflation, which only emerged after European economies weakened going into the fall … and that happened only because of the Russia/Ukraine crisis and the tit-for-tat economic sanctions that — again, temporarily— have undermined economies.

In short, true deflation will not happen. Period.

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