Conventional wisdom is that gold does well during periods of inflation and poorly during periods of deflation.
Since we are in a deflationary environment – indeed a depression – that means we should stay away from gold, right?
Well, there is some evidence that gold may do well during the later stages of deflation.
And the wealthy are buying gold as a safe haven asset.
And many credible people are saying that the economic crisis could cause widespread unrest. Unrest drives the price of gold up.
In addition, in an interview with Bloomberg, Eric Sprott – who manages $4.5 billion in assets, and correctly predicted in March of 2008 a “systemic financial meltdown” – is predicting that the depression which he says we are just beginning could drive the price of gold up to $2,000/ounce.
Sprott argues that the worsening crisis could cause a failure of treasury auctions, which would drive the price of gold sharply higher.
Sprott currently recommends buying gold bullion and stocks, and shorting the entire equity market.
Sprott is clearly a goldbug at this point in time:
“I believe no matter what environment you’re in – deflation or inflation – people will run to gold,” Sprott said. “Gold is proving exactly what we all would have expected, that in almost any environment, it’s a go-to asset.”
Of course, the government could seize gold at any time, as FDR did during the Great Depression. And there are many who say that the gold market is rigged. So diversification is always important.
Note: I am not an investment advisor and this should not be taken as investment advice.