Gold during a deflationary period?

[TheApe]

I think a lot of new people have been investing in Gold as a hedge against inflation. All the talk from government suggest they are printing money and unprecedented levels and inflation is inevitable.
I just think it could be all a little too obvious and the desired inflation might not be hit. Powell saying they can "print money digitally" may well have been deception to try keep money flowing into stocks. If I hear central banks making statements to strongly hint towards obviously inflation, I am skeptical and worry for the opposite. There is nothing they fear more than deflation. We could be seeing a deflationary economy for a short time or for several year.

The stock market is more and more looking like a massive ponzi scheme, at least in my eyes. I think that will crash hard first. We could see a large flood to gold...

Or, as currency dries up, more and more could sell their gold and stick with currency.

Gold, should also benefit from the psychology of hard times and the threat of inflation around the corner.

Of course, actual price against currency could be of little relevance to some, as long as Gold holds its purchasing power.

[Prophecy]

The QE money doesn't really go into general circulation so it's 'sterilised' therefore it doesn't cause mass inflation like people think it would. However, the Fed now has a trillion bucks of the new QE primed to helicopter in to probably control deflation should it be needed. They didn't do that after 2008, but now that 'unsterilised' cash is on the Fed accounting sheets primed for action...

[TheApe]

42 minutes ago, Prophecy said:

The QE money doesn't really go into general circulation so it's 'sterilised' therefore it doesn't cause mass inflation like people think it would. However, the Fed now has a trillion bucks of the new QE primed to helicopter in to probably control deflation should it be needed. They didn't do that after 2008, but now that 'unsterilised' cash is on the Fed accounting sheets primed for action...

Where does the fed get this "trillian bucks of new QE"

[Prophecy]

3 minutes ago, TheApe said:

Where does the fed get this "trillian bucks of new QE"

Suggest you watch all his videos

[TheApe]

Sorry Prophecy I wont waste my time.

I try to avoid any of these youtube gold channels.

[Prophecy]

1 minute ago, TheApe said:

Sorry Prophecy I wont waste my time.

I try to avoid any of these youtube gold channels.

Check your tone

[TheApe]

Just now, Prophecy said:

Check your tone

Sorry, no offense meant. Just these kind of channels are often extremely biased.

Maybe just answer the question in your own words?, if you are up for discussion.

[Prophecy]

18 minutes ago, TheApe said:

Sorry, no offense meant. Just these kind of channels are often extremely biased.

Maybe just answer the question in your own words?, if you are up for discussion.

I'm sorry but you did mean offence and your passive aggressive response confirms that. You aren't looking for a possible answer or broader mindset about the subject, that is clear. No one on this forum has definitive answers about anything, you know that and so do I, so to ask for a 'discussion' without even entertaining any shared knowledge from outside of this forum shows me that you don't have the intentions that your words attempt to imply.

[TheApe]

1 minute ago, Prophecy said:

I'm sorry but you did mean offence and your passive aggressive response confirms that. You aren't looking for a possible answer or broader mindset about the subject, that is clear. No one on this forum has definitive answers about anything, you know that and so do I, so to ask for a 'discussion' without even entertaining any shared knowledge from outside of this forum shows me that you don't have the intentions that your words attempt to imply.

 

Again, I apologize..... My comment was only honest(maybe a bit brash) as I am multitasking😃.

I avoid these pro gold youtube channels at all cost. They twist everything to suite their narrative. Ill watch the 6 minutes video later, since you recommend it.

[TheApe]

Just to note. I have no issues with external sources. But would be nice if you also put it in your own words.

Rather then just, here, look at this. I like to understand your own thought process.

[Wonger]

You mean the Deflation Ive been talking about for Months that will crash Gold to $385?😁

[TheApe]

16 minutes ago, Wonger said:

You mean the Deflation Ive been talking about for Months that will crash Gold to $385?😁

I suggest you read the first title of your thread Wonger.

It just states "I predict Gold will fall". You dont state any reason.

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Added 0 minutes later...

17 minutes ago, Wonger said:

You mean the Deflation Ive been talking about for Months that will crash Gold to $385?😁

Oh, you did include a fancy little graph too, but didnt comment on it.😅

[SilverApe]

Just thinking aloud here, but could you not simply use two charts and conduct a comparative study? The first begin a practial form of inflation reading over the last 100 years in the UK, could be CPI or RPI or some other meansure, and then the price of gold's nominal value or change that to be inflation adjusted. The comparsion between this two should indicate if gold declines during deflation.

That said, if you look at gold's nominal vlaue on a log chart you can see that the price is stepping up higher with each progressive decade. So there is at least a tangental debate to be had that during delfation the price may remain stable and then catches up during inflationary periods.

In my personal opinion I don't think this is the right ananlysis, as gold has a monetary function which does two things. First, it is an indicator of monetary confidence, primarily from the central banks. Secondaly, as a measure of credit expansion that is being produced from retail bank accounting as deposits are being made. This is also represents fractional loan to book banking/lending or fractional reserve banking.

Again, this isn't a firm idea as I am technical writer by trade and not an accountant/economist. 

Edit: This link might be a good read https://www.thestreet.com/mishtalk/economics/gold-is-not-a-function-of-the-us-dollar-nor-is-gold-an-inflation-hedge

 

[TheApe]

1 hour ago, SilverApe said:

Just thinking aloud here, but could you not simply use two charts and conduct a comparative study? The first begin a practial form of inflation reading over the last 100 years in the UK, could be CPI or RPI or some other meansure, and then the price of gold's nominal value or change that to be inflation adjusted. The comparsion between this two should indicate if gold declines during deflation.

That said, if you look at gold's nominal vlaue on a log chart you can see that the price is stepping up higher with each progressive decade. So there is at least a tangental debate to be had that during delfation the price may remain stable and then catches up during inflationary periods.

In my personal opinion I don't think this is the right ananlysis, as gold has a monetary function which does two things. First, it is an indicator of monetary confidence, primarily from the central banks. Secondaly, as a measure of credit expansion that is being produced from retail bank accounting as deposits are being made. This is also represents fractional loan to book banking/lending or fractional reserve banking.

Again, this isn't a firm idea as I am technical writer by trade and not an accountant/economist. 

Edit: This link might be a good read https://www.thestreet.com/mishtalk/economics/gold-is-not-a-function-of-the-us-dollar-nor-is-gold-an-inflation-hedge

 

I believe Gold has done well and bad in some deflationary periods. 

Its difficult as we dont see these periods too often and in some previous we had gold linked to the dollar which changes the dynamic.

[SilverApe]

Just playing devil's advocate here, but in the non-fuduciary sense, gold is peripherally linked to the currecy's of other nations like China and Russia. They surely have a stake that is perhaps more important to the US as the desirability of gold is more apprent in the East. So, the US gold backed dollar is not as desirable and not so pushed.

I think you have touched on the complication on this analysis as gold's true "purpose" is one that constanyl changes and evolves over the decade. Maybe a better set of questions are:

Twenty years from now will...

...central banks buy more gold?

...will central bank money supply (QE) increase?

...are retail banks likely to cut loan issues and deleverage?

... is the average consumer going to deleverage also? No credit cards, and cash only payments?

... will the retail investor be willing to buy negative bonds and have negative rates at the retail banks?

...deflation occur for more than the twenty year period?

 

I think an outlook that is looking ahead of the curve instead of the curve is needed. That's how surmise the concept.

[HawkHybrid]

2 hours ago, SilverApe said:

The first begin a practial form of inflation reading over the last 100 years in the UK, could be CPI or RPI or some other meansure, and then the price of gold's nominal value or change that to be inflation adjusted. The comparsion between this two should indicate if gold declines during deflation.

 

this would be an unclear chart.

100 years ago when gold coins was money in circulation, deflation meant money is in demand.

now that we circulate fiat currency deflation means the ($,£, or other currency) is in demand.

these are two different scenarios for gold.

 

HH 

[SilverApe]

2 minutes ago, HawkHybrid said:

 

this would be an unclear chart.

100 years ago when gold coins was money in circulation, deflation meant money is in demand.

now that we circulate fiat currency deflation means the ($,£, or other currency) is in demand.

these are two different scenarios for gold.

 

HH 

 

I agree, but it's the only way I can think of to answer OPs initial question. The alternative would be to track the cost of a wedding band and dig through catalouges for old prices. This would have its own problem as jewlery is also a measure of labour cost, rent, tax and that has declined over the last 100 years. 

Whatever the chart that can display this data will need literally thousands of data points and tens of sources to create something meaningful.

Again, this is above my sphere of knowledge and just speculative chat.

 

[Prophecy]

Am I right in thinking that over time, the products used to calculate CPI have changed even when they are still being purchased i.e. not only changed to reflect just changed tastes. e.g. beef replaced with chicken? Could this be used to hide real inflation/deflation amongst taste and manufacture advances? It is a bit of a Maloney hypothesis (and I take him with a massive pinch of salt) but id love to get a list of the first items they calculated back in the day and see how much they would really be today

[SilverApe]

2 hours ago, Prophecy said:

Am I right in thinking that over time, the products used to calculate CPI have changed even when they are still being purchased i.e. not only changed to reflect just changed tastes. e.g. beef replaced with chicken? Could this be used to hide real inflation/deflation amongst taste and manufacture advances? It is a bit of a Maloney hypothesis (and I take him with a massive pinch of salt) but id love to get a list of the first items they calculated back in the day and see how much they would really be today

This is absolutely right. The "basket" of goods they use change over time. So, twenty years ago they would have included DVD players, and gardening tools, but now, they have substituted that for Apple Store vouchers, and gin. It's an imprecise measure of inflation. They really are just guessing.

This method was touted because it tracks the population's more sought after products and so that was the idea. But again, it's easy to hide deeper issues through product substitution.

Aside from this the big way to hide inflation is by making products just a tiny bit smaller. Like chocolate boxes from 2010 were 200g but then in 2020 they are 185g and they keep the external packaging size the same. They also change up the "new" larger sizes so that the old normal size becomes the new bigger value pack.

The OPs question is hard to answer as gold is jewelry, industrial, monetary, sentiment, fear, and many other things. To make matters worse the relative weighting of each changes with time but it's hard to know by how much. There is even disagreement to whether jewelry even changes the price of gold.

Edit 1: I forgot to mention, with technology and cars we are technically undergoing massive deflation. Think about how laptops becomes more powerful and smaller without each generation but remain roughly the same price. Same for cars. For roughly thr same pricee each decade cars have more features and existing functions are better - think brakes and steering. Optional extras are getting better too, so from cassette tapes to internet radio.

I suspect an arguement can be made that we are actually in a deflationary period set about by technology but we dont notice. This is because we have increasing desires for the latest model, equipment is not made to last, and an economy based on consumerism and debt that encourages over extending credit.

Edit 2: 

ONS basket data

https://www.ons.gov.uk/economy/inflationandpriceindices/articles/ukconsumerpriceinflationbasketofgoodsandservices/2020#changes-to-the-baskets-in-2020

CPI and CPE inflation

https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx

[Martlet]

6 hours ago, SilverApe said:

This is absolutely right. The "basket" of goods they use change over time. So, twenty years ago they would have included DVD players, and gardening tools, but now, they have substituted that for Apple Store vouchers, and gin. It's an imprecise measure of inflation. They really are just guessing.

Not really guessing, economists produce oodles of data and methodology to show their working.  There would be no point keeping unfashionable or out of date products.  The problem with way inflation is calculated is when people think its supposed to reflect their personal inflation.  Its a measure for the economy, so seeks to reflect a broad average to show supply and demand.  It may be crude but haven't seen an alternative. 

[5huggy]

10 minutes ago, Martlet said:

Not really guessing, economists produce oodles of data and methodology to show their working.  There would be no point keeping unfashionable or out of date products.  The problem with way inflation is calculated is when people think its supposed to reflect their personal inflation.  Its a measure for the economy, so seeks to reflect a broad average to show supply and demand.  It may be crude but haven't seen an alternative. 

Right on Buddy - - 

The governments will "cherry pick" whichever matrix they see fit to soothe (MANIPULATE/GROOM) their figures to keep the sheeple believing "ITS ALL OK " out there!😉

[SilverApe]

2 hours ago, Martlet said:

Not really guessing, economists produce oodles of data and methodology to show their working.  There would be no point keeping unfashionable or out of date products.  The problem with way inflation is calculated is when people think its supposed to reflect their personal inflation.  Its a measure for the economy, so seeks to reflect a broad average to show supply and demand.  It may be crude but haven't seen an alternative. 

I'd disagree with this. Inflation calculation is as accurate as sticking your finger up in the air to check which way the wind is blowing.

Economists do indeed produce oodles of data, even a a new field of mathematics, econometrics. That said, are they any closer to explaining the economy and how money flows, or even where money is created in the economy? They're not. It's like the crisis isn psychology in the 1940s, they're all guessing but dont want to admit it as the subject needs reform. 

It's very crudeness is the precise problem and therefore it is as good as guessing.

If we take necessity as the mother of invention then I'm sure a better measure could be created. 

I'm not sure about you but central banking making interest rates doesn't seem very freemarketesque to me. There is clearly a wider problem with money that is more than just inflation/deflation.

Edit: here is the cpi inflation forecast from the bank of England https://www.bankofengland.co.uk/inflation-report/2019/may-2019/prospects-for-inflation

The forecast is in a range, wide range at that. 

 

[SilverApe]

1 hour ago, 5huggy said:

Right on Buddy - - 

The governments will "cherry pick" whichever matrix they see fit to soothe (MANIPULATE/GROOM) their figures to keep the sheeple believing "ITS ALL OK " out there!😉

There is a reason why economics is called The Dismal Science. For the very reason you state.

https://www.investopedia.com/terms/d/dismalscience.asp#:~:text=Dismal science is a term,to unending poverty and hardship.

 

[Martlet]

26 minutes ago, SilverApe said:

I'd disagree with this. Inflation calculation is as accurate as sticking your finger up in the air to check which way the wind is blowing.

No one has proposed an alternative method, until they do its the best we have to work with.  I think there is too much focus on the exact number, what is important is the relative change.  A steady, low rate is negligible, as long as wages track this. Faster rates of change are felt quite quickly, 8 or 10% doesnt really matter.  If the figure indicate deflation that will screw with spending and signal economic contraction, which no one wants. 

[SilverApe]

2 minutes ago, Martlet said:

No one has proposed an alternative method, until they do its the best we have to work with.  I think there is too much focus on the exact number, what is important is the relative change.  A steady, low rate is negligible, as long as wages track this. Faster rates of change are felt quite quickly, 8 or 10% doesnt really matter.  If the figure indicate deflation that will screw with spending and signal economic contraction, which no one wants. 

I agree that it is unfortunate an alternative hasn't been used or devised. It is the best we have for the moment.

I resonate with your statement of "as long as wages track this", I feel that price to earnings ratios are a better method to track. Like house value to earning and so on.

To answer OPs question, I suspect that deflation may not be able to happen in the next 10 years as debts are so large, corporate, retail, and sovereign, that any deflation would indeed be detrimental to the repayment of these debts. Interest rates need to be kept low and money supply will need to increase.