Gold News

Gold and the Great Correction

Where now for gold prices...?

IN OUR GUESS, both stocks and gold SHOULD be going down. That doesn't mean they will go down, of course. But at least it gives us a point of reference, writes Bill Bonner, founder of the Daily Reckoning.

They should go down because there's a Great Correction going on. There's no secret to it. Sometimes stocks are expensive and sometimes they're cheap. When an economy is expanding, it makes sense for stocks to be expensive...companies' sales are going up...profits should increase too. 

But when an economy is contracting...or, more precisely, when credit is contracting...stocks should be priced for shrinking sales, followed by shrinking profits. That is, they should be cheap, not expensive. Stocks are now priced for an expansion, not a correction. They should go down.

Investors are figuring that out...little by little. As they do, stocks go down. Simple as pie.

But gold is a little trickier. By our reckoning, gold is a little expensive. It buys more stuff than usual.

Of course, it should be a little expensive. Looking ahead, the whole world's banking, credit, and monetary systems are wobbling. Gold is the only money you can trust. So smart investors, smart CEOs, smart family men, and smart central bank chiefs are all thinking the same thing – that they should lay in a supply of gold as a reserve against catastrophe. So they're buying.

But in a Great Correction...assuming things don't fall apart...the value of paper money goes up. Or, to put it another way, the price of assets and other stuff tends to go down as demand falls. Broadly speaking, it is a deflationary world. And paper money is good money in deflation. As long as the system holds together.

And since, according to our guesswork, the system will probably hold together a bit longer...we figure speculators will begin to sell gold to get cash.

Besides, gold has had a spectacular 11-year run. It's time for a rest for the metal...and a test for the metal lovers. That's just the way it works. Markets and lovers always test their admirers. Gold should be giving its fans a test...before moving in the final stage of the bull market.

Will you pass the test, Dear Reader? Will you be true?

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Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, 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 more recently the election of President Trump.

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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