Trevor wrote:I think it's got a ways to go before it bottoms. The prices of gold and sliver crashed in the 1980's and can certainly do so again. I've listened to numerous analysts say that neither of them can go down in value because of how rare they are, but they've fluctuated in price over the decades just like everything else.
In 1971 gold was $35/oz. After the crash 10 years later it was like $250/oz. It is wrong to think of going from $35 to $250 as a "fluctuation", one definition of which is "wavelike motion". Now gold is $1,600/oz. It will not see $35/oz, nor even $250/oz, ever again, unless the US makes a new currency after this one fails. Imagine two currencies where one has a trillion new dollars printed each year and the other is not printed at all. Will the ratio between these two just randomly go up and down with "regression toward the mean" or will there be a continuing trend in one direction? If Bernanke announced today that on Krugman's advice he will do a QE3 of $2 trillion, would the price of gold in dollars go up or down? Gold is the one currency that nobody can print. There will continue to be a clear trend as long as they keep printing dollars, and they can not stop printing dollars as long as they are spending nearly twice what they get in taxes. They can not stop spending twice what they get in taxes. You need to get this to understand gold. Gold will be much higher 10 years from now when measured in US dollars, if US dollars even still exist 10 years from now.
There is another thing you need to understand. If you have gold hidden away someplace, it is very hard for the government to know or tax you on it. If you have real estate they can increase your property taxes so high that your rents don't cover your costs and your asset has no real value. If you have stocks they can tax the companies so much that there is little value left for the shareholders. If you have bonds they can print more money so that what you get paid back with in the future is not worth nearly as much as when you bought the bond (inflation tax). A change in tax or money printing can destroy the value of any of the 3 major asset types. When the taxes on the 3 major asset types get crazy you are best off to just hold real money, which is gold. As more people hoard the finite amount of gold the value goes up, which means an ounce of gold can buy more and more. This is deflation in terms of gold money. If your taxes are not already crazy they will become so as things get worse or a war starts.
Substantial price deflation in terms of paper money not backed by gold is a mythical danger used to justify more money printing. We have never seen it in the real world so far and we never will.