article from : Gold: Volatility 2009 (freelist@goldforecaster.com)
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..........1. Is the world going to experience deflation from here onwards? Or, do we believe that deflation will be defeated by inflation? This conclusion is the foundation of our investment policy for 2009 / 2010. Whatever our course on this is, will take us to success or failure.
2. In deflation cash is king and asset values decline. However, this leaves a twilight zone for gold, which in deflation is a haven from uncertainty and is a form of extreme-times cash. Its performance in the recent months has testified to this, as it dropped back somewhat but nowhere nearly as much as equities or commodities. Indeed, in currencies that experienced weakness against the U.S.$ gold has hardly fallen at all and in some has risen soundly.
3. In inflation asset values rise and cash value declines taking the value of savings with it. Debt loses its sting and the velocity of money accelerates as people run from cash into assets as fast as they can. Again, gold has to be separated from paper cash as it sits in its twilight zone again, as an asset that is unprintable, has no counterparty, while remaining a form of cash? As we watched the consumer bubble rise and house prices seemingly sailing up unstoppably, gold rose as if to warn of the coming credit crunch. It thus served as an excellent haven from the unreality of the seemingly endless rosy future that house prices had discounted.
4. These two points show us that our investment decisions need not be one or the other, but that desirable place of both, taking us to a safe place. How much better the helm feels when one can be sure of this direction. How much firmer our grip on our investments when we be certain of preserving and increasing real wealth this way?