While gold has hardly been seen to be performing well in recent months, and has failed to meet gold optimists' more extreme, or even more mild, expectations, it has still performed less badly than most other sectors of the market. As has been noted here on several occasions actual physical demand has remained extremely strong, both in eastern and western markets. Major gold suppliers have run out of inventory and seem to be having difficulty replacing it, while ETF demand remains very positive.
In his latest Gold Brief, Jeffrey Nichols of American Precious Metals Advisors says "Gold bulls are separating into two camps - inflationists who see gold as a hedge against future inflation and a decline in the U.S. dollar's purchasing power . . . and deflationists who see gold as a deflation hedge as money seeks safe harbor in cash and cash equivalents like gold.
"I believe we will see a longer, deeper decline in business activity than most, lasting into late 2009 or, more probably, 2010 - and likely to be accompanied by some of deflation, particularly in commodities, food, autos, and a variety of consumer goods. To be honest, deflation has been with us for some time already, first in real estate markets, then on Wall Street, more recently in oil and commodity markets, and, as anyone shopping for the holidays will soon notice, in many retail stores.
"But as the economy revives - as it must with massive and unprecedented Federal government stimulus - prices for many goods and services will shift from reverse to forward . . . and inflation will replace deflation as all those trillions of dollars come home to roost."Gold is the answer. Now what was the question?