Courtesy of Mish.
In response to Hyperinflation Silliness (Times Two), reader William says “I think you are saying gold benefits no matter what. I’m confused.”
That’s a good discussion topic. I have commented on this before but let’s recap with a few more bullet points as to when gold does well and when it doesn’t.
Gold Does Well in These Environments
1. Deflation
2. Hyperinflation
3. Stagflation
4. Decreasing faith that central banks have everything under control.
5. Rising credit stress and fear of defaults
Gold Does Poorly in These Environments
1. Disinflation (1980 to 2000 is a perfect example. There was inflation every step of the way but gold got clobbered).
2. Increasing faith in central banks’ ability to keep things under control (Mario Draghi’s “Whatever it takes” speech triggered a prime example)
Gold does worst in prolonged disinflation and in periods that have rising faith in central banks.
I suppose one could condense this all down to increasing or decreasing faith that central banks to have everything under control. Alternatively one might think of periods of rising or abating credit stress.
Hopefully the bullet points highlight the times in ways that are more easily understandable than a simple “rising faith, falling faith” duality.
