Debt monsters of the past have tended to end in deflationary depressions, but itâ€™s important to understand that gold can rise in this kind of environment. Remember, gold rises during economic uncertainty. In the early 1930s, for example, during the Great Depression, President Roosevelt raised the price of gold almost 70% from $20.65 to $35 an ounce in a struggle to bring back inflation.
Gold is money. Itâ€™s the currency of last resort when monetary times are difficult. So when gold rises in all currencies, as itâ€™s been doing for several years, you know the rise is enduring and superior. So even though gold has no yield or earnings to measure like the other markets do, it has true value.
The central banks are flooding the markets with their own currencies, and competitive devaluations will continue to grow. Many countries depend on exports for economic survival. This means the best price in the current deflationary environment wins, which is what a cheaper currency does.
This situation originally started with globalization and itâ€™s bullish for gold. The U.S. is still in a delicate situation. It needs a weaker dollar to compete and stimulus measures must continue, which are both ultimately bullish for gold.
This is one important reason why we do not think gold or commodities are in a bubble. We believe they are rising within a mega trend that could last several more years, perhaps a decade. Some say that China is in a bubble and if they are, the demand for commodities will fall. China may be overheated but we donâ€™t think itâ€™s in a bubble. Their growth, even if itâ€™s only a part of what they claim, is solid.