Gold and silver came down because speculators believe that China, the world’s remaining economic engine, will continue to tighten in the months ahead. That would be deflationary, the thinking goes, and bullion prices should ease in anticipation.
The thinking is wrong, however, for the simple reason that the move toward fiscal austerity around the world, especially in euroland, is no match for the rampant monetary stimulus that is being used to counter the worst global recession since the 1930s. Beggaring-thy-neighbor via currrency devaluations is not merely in vogue, it is the Tulip-o-mania of these times.
If this trend is capable of causing the price of gold and silver to fall, then pigs can fly and the world is entering a period of unprecedented peace, prosperity, harmony, with high-paying jobs for everyone. If you believe this, then you should be hoarding all the paper money you can get your hands on, stuffing it in your mattress, and in Treasury Bills and Notes that yield almost nothing.
For our part, we’ll put out trust in gold and silver, which for the last decade have steadily climbed in value no matter what investment story was in vogue; regardless of whether it was inflation or deflation that we feared; and even as the world’s financial system has edged toward the deepest imaginable abyss.