That’s the question that Steve Saville asks. There’s only one:
When considering the outlook for the next 6 months or longer, the only gold-bearish argument that currently holds any water is the deflation-related one. If the forces of deflation overwhelmed the efforts of central banks such that the total supply of money began to contract, then gold would probably keep performing well in terms of most other commodities but would perform poorly in terms of the deflating currencies. As a result, we would not be intermediate-term bullish on gold if we thought that genuine deflation (a contraction in the money supply) was a likely outcome.
So in order for deflation to occur money supply would have to contract even as central bankers continue to print more and more money. You want to bet on that one?
And then there’s the bullish argument for gold:
Our expectation that the outward evidence of inflation will dissipate is supported by the performance of the Future Inflation Guide (FIG) calculated by the Economic Cycle Research Institute (ECRI). Despite its name, the FIG has nothing to do with monetary inflation; rather, it is a leading indicator of the prices of goods and services. Specifically, it is designed to indicate what will be happening to prices in 6-12 months time. As illustrated by the following chart, the FIG (the blue line) has plunged over the past few months.
The superficial signs of an inflation problem will almost certainly subside over the next 12 months, but this should not create a significant headwind for gold as long as the rate of monetary inflation continues to rise. As discussed in the past, the reason is that savvy speculators will likely accumulate positions in gold in anticipation of the eventual/inevitable effects of the monetary inflation[my emphasis].
You probably want to be a savvy speculator.
