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Falling Prices Don't Mean You Shouldn't Buy Gold

Things are different in a deflationary economy...

FOR ELEVEN years now we've told our Daily Reckoning readers  to 'Buy Gold; it's going up.' This was good advice. Gold did go up...more than any other asset, writes Bill Bonner, founder of the Daily Reckoning.

Now, what are we saying? We're still urging readers to Buy Gold. Gold is the only true money. It's been used as money for thousands of years. And it will probably be used for thousands more. At least, we have a strong hunch it will be used when today's claptrap money system blows up.

Still, the system may surprise an old refrigerator, it may last a lot longer than we think it should.

Did we explain why?'s the explanation again:

We're in a Great Correction. Recently, this correction has given every indication of hanging around for a long time — a la Japan.

We're also in a period when the feds are throwing caution to the winds in order to over-turn the correction. But, here's what has happened: the feds have not been able to do it. They've tossed a lot of caution to the winds already. But the winds don't care; the correction continues. Just read the headlines. Consumer sentiment is sinking. House prices are still going down. The number of people on food stamps is going up.

This is fundamentally a deflationary economy. It's not an inflationary economy. It's not an economy that will take up the Fed's EZ money and transform it into consumer demand. It's not an economy that will borrow money from the banks and increase employment and the money supply. The feds have been unable to ignite the kind of 'animal spirits' you need in order to get inflation rates up. They've tried everything. It hasn't worked.

No, it's an economy where demand is falling. We saw that yesterday. Gasoline use in the US has dropped to an 8-year low. Households are saving money. Incomes are going down. The real economy is shrinking.

At the household level, thrift is on the rise. Among the investoriat, fear is the dominant emotion. This stock market could collapse any day; all it needs is the right headline.

The Fed has been forced to tell the world that it will keep its key lending rate at zero for two years. This is an admission that nothing has worked in the fight against the Great Correction. It is a clear signal that the US will follow Japan down that long, lonesome highway...towards a multi-decade slump. The US has already had one 'lost decade.' Most likely, it will now lose another one. For now, the feds have been beat.

The victory of fear over greed means that investors are no longer concerned with the return ON their money; they're worried about the return OF their money. And they think that the safest place for their money is in US Treasury debt. Lend money to the people who print it; what could go wrong?

Well...that's what we'll find out when this current stage of Great Correction/de-leveraging comes to an end.

When? How? We don't know.

But NB...we don't really know what is coming. So, we try to figure out what we think you should BELIEVE is coming. And right now, there's a lot of risk in stocks...and in bonds. And in the short term, there's risk in gold too.

You're probably best off believing that stocks will go will go down...and that the economy will remain in a period of fear/demand destruction for months, and probably years, before a major corner is turned.

In the meantime, stick with gold (as insurance) and cash (as ammunition).

At least that way, if the Gold Price goes'll feel rich. If it goes down, you'll feel smart. And then you can use your cash to buy more gold.

Get the safest gold at the lowest prices with BullionVault...

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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