7 Driving Forces Behind the Rise of Gold

We are being bombarded with contradictory predictions on whether to expect inflation or deflation. And naturally gold investors – those holding gold bullion, shares, coins, ETFs etc – are wondering what to do. Do they take their profits and run – now – or, should they continue to buy and weather the dips. Many investors are basing this decision on whether they believe the inflationary pundits or the deflationary predictions. A rising gold price is continually equated to rising inflation

But inflationary conditions do not need to be in force for gold to shine. Predicting gold’s performance through an inflation vs. deflation magnifying glass may be missing the point. The gloom and doom indicators are bullish for gold whatever the outcome. What if you thought, no matter what the economic outcome, gold would continue on its upward trajectory. I guess you would continue to buy and stop fretting over the detail.

In ‘normal’ times gold would be expected to rise with a falling dollar – which we have now – and the dollar decline, combined with the monetary inflation taking hold, should send it through the roof! But is that the likely outcome of the current mess. These are not normal times!

The final decision on whether to trust your future wealth to gold could make the difference between continuing to live a comfortable life, or scrabbling around to survive.

1. Right now, speculators are profiting from volatile currencies, and from the equity bubble fueled by the cheap money. Equities have become overvalued – again, and the banks are acting as if their recent near-collapse was no more than a bad dream.

2. Liquidity had returned to the investment market (even though the credit squeeze still persists for legitimate businesses and mortgage seekers). Banks refuse to lend because they need to bolster their balance sheets, it is claimed,but in actuality they are achieving this by driving up the equity markets, it would appear.

3. And, the bonus culture is back with a vengeance, in essence paid for with taxpayers cheap money. You would think that no crisis had ever existed.

4. The ‘feeling’ in the market is inflationary, but the final effect is more likely to be stagflation or even deflationary recession. But some simple arithmetic will warn us that the crisis of last year was merely a warning shot.

5. Bankruptcies have barely begun. Commercial property, business loans, low grade mortgages, and job losses could combine to wipe out over 20 trillion of debt.

This will cause bank failures and further bankruptcies. It becomes a vicious cycle.

6. This has already happened to Japan which has been trying without success to reflate for over 10 years

7. The Dollar continues to wilt and every so often we hear that some country is moving to another currency to trade commodities such as oil. For more on this subject click on our Gold Report link at the end of the page. But the same weaknesses haunt all the fiat currencies and non will be strong enough to take over from the dollar. What is the alternative?

The billions being pumped into the economy will pale into insignificance beside the trillions of debt that could be written off. Pouring money into the banks may pay another year’s bonuses but is unlikely to reflate the economy. The gigantic gap between the reflationary billions and the deflationary trillions will be the amount by which the money supply contracts.

In truth, the outcome is likely to be dire – if inflation takes hold, gold will rise as a protection against devaluing currencies. If, on the other hand, we falls into deep recession, gold will be the one value we can rely on to buy staple commodities.

Severe deflation occurs when the banking systems are collapsing, which is what is happening right now. Governments and the media will have us believe that the recession is over and growth has resumed, but bear in mind, Gold is the only financial asset that is not someone else’s liability.

Source by Anna P Best

7 Driving Forces Behind the Rise of Gold