Fingers Crossed14 Jan 2009 14:18
Gold Miners May Outperform
Deflation in an economy using fiat currency means defaults on debt, very tight credit, and general economic contraction. Gold historically outperformed during a depression because gold was money, and prices of most things declined more than the price of money, which can even increase as the public shuns risky assets for cash or requires it to repay debts. We saw this effect from July through December with U.S. dollar demand due to global deleveraging. Unlike paper currency, however, gold cannot be produced at the flick of a switch. During a deep recession, production costs will decline. If gold outperforms relative to other assets and commodities, as it did in 2008, gold miners will see their profits increase.