This rumor is running wild on the web.  What do you guys think?  Possible because every folks want to buy gold to defend against hyperinflation from too much currency printing?

Not so sure that I agree that gold would be a good hedge against inflation. There is also talk that the US gov. could flood the market with gold to pay off debts.

In any case, I think the greatest concern right now is the specter of deflation, for which gold provides no protection

As a long time AU physical investor, even before it was “Kosher” in the USA, don’t believe the hype.

For gold to just MATCH the last high of the 80’s in constant dollars, it would have to be above $2,300/Oz.

Gold is one of those things that seems great, and they do have a good storyline, UNTIL YOU buy into things. It earns nothing, puts you at physical risk { if things get that bad when you use one, *they* will know, and *they* will have guns to help you divest yourself of the shiny metal }

And it is so darned MANIPULATED by the powers that be it isn’t funny.

{....if anyone wants to run down some VERY interesting trails…GOOGLE this -> GOLD BASEMENT WORLD TRADE CENTER }

Very high inflation is coming, the likes of which we’ve not seen for a couple of decades.  Mostly this is owing to rapid growth in the developing world and the deteriorating fiscal situation in the States (deficits Federal, trade, etc), which will worsen dramatically as the Baby Boomers retire.  We seemed on the brink of it before the markets blew up this year.  Now, deflation seems a more salient concern.

But when the Second Great Depression is successfully prevented, consumers return to our national pastime, and asset prices (even houses!) resume their upward march, inflation will return.  Perhaps with extreme prejudice.  Again, the drivers will be commodities and our crappy fiscal situation (which obviously has not been improved by shovelling money into the Bear’s maw this autumn).  But we don’t know if very high inflation will come in 2010 or 2015 (I rather doubt we’ll see it in 2009).

Gold can be an effective hedge against inflation, but it’s arguable that equities might be a better bet.  After all, businesses will be charging higher prices as part of the inflation.  Real (ie inflation-adjusted) returns might be harmed by inflation, but they shouldn’t go severely negative.

Where you don’t want to be when the inflation comes is cash (obviously) or fixed instruments eg bonds.

The problem with gold, as Tan points out, is that the market is fairly limited, and so the prices are extremely volatile and can be moved by a few major players (if you thought the hedge funds and AAPL were bad…).  So it’s a rather risky place to be.  That said, as I grew uneasy about equities (2006-7), I started encouraging people to move somewhat into gold.  (I also recommended my parents buy a flat in Paris during the dollar’s height circa 1999, but they declined, helas.)  But at this point you want to be buying up equities at their bear-season bargains.  In fact some of the recent declines in gold have been attributed to funds liquidating for redemptions as well as investment cash.

I plan to buy significantly into GLD eventually, though probably not for a couple of years.  And, again, don’t expect to profit immensely from gold; you’ll just be preventing the massive erosion that you would suffer in cash.  I need to do more research on the ‘70s (for this and many other reasons) before I know whether gold would prove superior to equities in any significant fashion.

I wouldn’t buy gold. I’d buy grossly oversold equities.

Play Ultimate - 03 December 2008 06:53 PM

Not so sure that I agree that gold would be a good hedge against inflation. There is also talk that the US gov. could flood the market with gold to pay off debts.

Your “talk” sources obviously no nothing about gold. As of Nov. 14, “The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion (from jsminset.com)”. This is a drop in the bucket next to the tens of trillions the debts are.

Play Ultimate - 03 December 2008 06:53 PM

In any case, I think the greatest concern right now is the specter of deflation, for which gold provides no protection

Yes that is the conundrum. Prechter says that gold is just another commodity in a deflation (cash is king), while James Sinclair says it is real money and the only thing that is worth anything in a world of fiat currencies. Probably both right. First deflation then inflation.

Mace - 03 December 2008 06:28 PM

This rumor is running wild on the web.  What do you guys think?  Possible because every folks want to buy gold to defend against hyperinflation from too much currency printing?

What do I think? If it is true that the rumor is running wild on the web, it is probably a good time to sell! When the public and media are bullish on gold it is the wrong time to buy.  The time to buy is when everyone has lost interest. Gold is one market where the general public always gets killed.

Mmmm…citigroup started this ball rolling, could they be long GLD