Friday, May 20, 2011

Gold: inflation and deflation.

The Euro crashes due to intensified fears of a Greek default, and rising Spanish bond yields.  The USDollar rises as a result.  Which means gold should plummet, right?  Wrong, gold surged in a flight to safety today.

Many investors correctly buy gold as an inflation hedge.  What they don't realize is that gold performs even better in a deflationary environment, as debt default risk rises.  When the credibility of sovereign debt and paper currencies erode, precious metals remain a safe haven.

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