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Forum Direct To Canada • View topic - If Deflation Wins, What Will Gold Stocks Do?

If Deflation Wins, What Will Gold Stocks Do?

Learn more about Investments in Canada and all around the globe. Discussions include Gold, Silver, Precious Metals, Oil, Gas and other sorts of commodities.

If Deflation Wins, What Will Gold Stocks Do?

Postby Alta Vista [Bot] » Sat Aug 07, 2010 10:59 pm

I would like to share with all of you the article I got by email.




By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

http://www.caseyresearch.com/displayCddArchives.php

The talk of a possible double dip is now common banter on TV investment programs. And indeed, deflationary forces seem to have the stronger grip right now than inflationary ones. So if deflation is the next reality we have to face, what happens to our favorite stock investments?

There’s lots of data about what gold does during periods of high inflation, but less so with deflation, partly because we don’t see a true deflation all that often. But of course we’ve got the biggie we can look at, and the seriousness of the Great Depression can give us a big clue as to how gold stocks behave in a true deflationary environment.

First, we know what happened to the stock market in 1929, and in that initial shock, gold stocks crashed too. A rally ensued in most equities until the following April, including gold stocks. Then the Dow took a one-way elevator ride down for the next two and a half years.
What did gold stocks do?

From 1929 until January 1933, the stock of Homestake Mining, the largest gold producer in the U.S., rose 474%. Dome Mines, the largest Canadian producer, advanced 558%. In spite of the gold price being fixed at the time, gold stocks rose dramatically.
At the same time, the DJIA lost 73% of its value.
And the chart doesn’t show that you could have bought both stocks at half their 1929 price five years earlier, which would have led to gains of around 1,000%. That’s not all: both companies paid healthy and rising dividends as the depression wore on; Homestake’s dividend went from $7 to $15 per share, and Dome’s from $1 to $1.80.
Yes, volatility was high in the gold stocks throughout the depression, with occasional wild price swings. But after the 1929 crash, much of the volatility was to the upside.
The bottom line is that the two largest gold producers – during a time of soup lines and falling standards of living – handed investors five and six times their money in four years.
What about gold itself? On April 5, 1933, President Roosevelt issued an executive order forcing delivery (i.e., confiscation) of gold owned by private citizens to the government in exchange for compensation at the fixed price of $20.67/oz (you can read the ). And less than nine months later, he raised the gold price to $35, effectively diluting every dollar 41% overnight and swindling everyone who had turned in his gold.

We don’t know exactly what an untethered gold price would have done during the depression, but given its distinction in history as a store of value, we believe it would retain its purchasing power in a deflationary setting regardless of its nominal price. In other words, while the price of gold might not rise, or could even fall, your best protection is still gold.

But with all this said, the overriding concern isn’t deflation. Yes, economic growth will likely be flat for years, and many Americans will see some hard times ahead. But deflation won’t win; in a fiat money system, any deflation will be met with an inflationary overreaction (as we’ve seen). And the worse the deflation, the more extreme the overreaction will be.
In fact, I think there’s another round of money printing before this year is over. And sooner or later, that extra money is going to dilute every dollar you own, giving us an inflationary hit as bad as the deflationary one we got during the Great Depression.

It’s for this reason that I continue to urge you to own physical gold, in your possession and under your control, given its reliability as a store of value in both inflationary and deflationary environments. If you don’t have a meaningful portion of your investments in physical gold, I think you’re playing with fire. And those who play with fire eventually get burnt.
Want an easy way to start buying physical gold? I arranged for some seriously discounted bullion in the current issue of Casey’s Gold & Resource Report, which you can check out ...
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If the U.S. Dollar were to fall how important is gold ?

Postby Alta Vista [Bot] » Sat Aug 07, 2010 11:10 pm

If the U.S. Dollar were to fall how important is gold to the States?

By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch

Since the demise of the Gold Standard, monetary authorities have tried as many ways as possible out there to sideline gold as part of the monetary system. Since the early eighties they have succeeded to some extent, but this was by discrediting it and by emphasizing the benefits of paper currencies. Paper money in a paper system was working very well and everybody felt that much more prosperous, so ignored gold’s departure. Since then the developed world has had a full twenty-five year long growth period. Then began the real rise of the east! Then, in mid-2007, a ‘credit crunch’ knocked the stuffing out of the solidness of that system. Seven years before that crunch, when boom times were enriching the developed world the most, the gold price started to rise, when it was realized that central banks were not keen to sell all their gold at all. Only small amounts were sold and the bulk retained in the vaults of central banks. So why is it still in the system?
Read here http://www.goldforecaster.com/
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Re: If Deflation Wins, What Will Gold Stocks Do?

Postby Prophy » Fri Jul 26, 2013 1:43 am

It is a pity, that now I can not express - there is no free time. I will return - I will necessarily express the opinion on this question.
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