An excerpt from an interesting editorial...One asset that we fully expect to hold its value and to move higher is gold bullion - and, by extension, its junior sisters silver and platinum. Gold is money and has been proven to hold its value in periods of both deflation and inflation. Our chart below (from Bullion Management Group Inc.) shows the performance of gold versus equity markets in 2008. While Gold in US$ terms rose only five per cent in 2008, the Dow Jones Industrials fell 38 per cent. In Canada and Britain it was even more dramatic. Gold rose 31 per cent in Canadian dollars as the TSX Composite fell 35 per cent; in Britain gold in British Pounds rose 45 per cent as the London FTSE fell 31 per cent. China and Japan were the only two countries where gold fell in their currencies, as both the Yen and Yuan were strong in 2008 outperforming the US$.
Gold continues to be maligned by many and the world's exposure to it remains very low. The conditions that we are seeing develop have never been more bullish for gold. Sprott Asset Management said in their December letter that "we have never been more bullish" on gold. It may be the only place left to hide as we go into 2009. The conditions are deteriorating even faster than we expected. What started as a potentially bad recession is now showing signs of turning into a full-blown depression. But the massive monetary and fiscal stimulus being created by the authorities almost guarantees that going forward Gold and bullion will be the key place to be. Investors should now have at least 25 per cent of their portfolios invested in Gold and Bullion.
The evidence is mounting that the economic downturn will be severe. We are only awaiting the numbers to show that indeed we might be able to say "It's a Depression". Not a pretty thought.
DavidChapman.com