George Washington writes in at Naked Capitalism on whether Gold is a Reasonable Investment.
It’s an excellent compendium of links, articles and opinion on Gold. Some points:
- Gold, considered a hedge against inflation, does well in deflationary environments too. And if the environment involves devaluing currencies it goes up – like the purchasing power of gold did during the Great Depression and in the last 10 years.
- There’s some evidence that while gold loses some sheen in the early part of a deflationary period, it climbs in the later part; the Yen-Gold chart is provided.
- Short term interest rates near 0% are good for gold.
- Government distrust – of the type happening in the US (we in India have never trusted our governments) – is positive for Gold.
- It’s the currency-of-last-resort, so panics induce buying.
- China will buy dips and effectively put a floor on gold prices.