Gold: The Bet Each Way

Certain types of assets perform better under certain conditions. It is commonly recognized that hard assets and commodities generally perform better in periods of inflation. Bonds and Cash tend to have a greater performance in deflationary periods. Gold has being interesting and as noted in previous Bulletins, gold’s trading behavior has been erratic. Tending to trend counter to the other traditional markets, gold has been up when the USD has been firm,  and this is counter-intuitive. However, gold is a unique monetary metal and historically has performed well in both an inflationary and deflationary period. As recent rhetoric is trying to compare the current situation to the 1930s it is interesting to see that gold out performed virtually all asset classes during the periods of deflation in 1929 and 1940 and also during times a great inflationary concerns in 1968 and 1980. 

As we are living through a massive amount of deleveraging we find ourselves sifting through the daily economic numbers trying to find some balance. On the one hand you have the global economy stalling, companies going bankrupt and countries defaulting: highly deflationary. Then on the other hand we have central banks and governments looking to prime economies through low monetary policy and forms of quantitative easing in order to stimulate growth: highly inflationary.  Whichever way you look at it history has told us that gold has performed at either end of the spectrum.  So, as we head into another round of bailouts in Europe, potential extension to “twist” in the US and dovish action continuing in China, the effects whether inflationary or deflationary will benefit the metal.

We took some profit on our most recent position just ahead of the Greek general election. We continue to hold onto our long positions and will be tempted to add on a break of US1640.We have had a couple of goes at buying the break so we want to be sure this time.