I won’t say that I’m right because I simply don’t know whether I am really right about investing in gold. But I’m at least convinced enough to put my own money into it.

So what is inflation? You can find the dry and boring definition here but let’s keep it straight and simple. Inflation is a general increase in prices in the economy. You have probably noticed that for some goods, prices tend to go up year by year a…

It’s really going to be just water infrastructures. Water is very abundant on Earth. All you need is energy to filter/process them (for example, from sea water), and pipe to transport them.

Certainly, it doesn’t need to be gold or silver. But any tangible assets will be way better than paper money in the case of hyper-inflation. I’m not saying that US will go into such scenario. But everything is all relative and based upon current economic confidence in a particular stock or goods.

Personally, I believe that the twenty years of bear market in commodity is probably over. And you can see how I invest my money according to my belief at My Networth page.

Thanks BlueDaze for all of your great comments.

Personally, I also have serious doubts about commodities withstanding a China slowdown. I believe if such event occurs, one should get OUT of the commodity market.

Although you may not gain as much if your country’s currency is strong compared to $US, I believe that the gold bull market has taken the next stage of rising against all currencies. Put it in another way, the inflation rate dominated in all currencies will go up, which translated into lowering of the living standards in the first world countries for the benefits of improving living standards in the third world countries.

Again, there are many things that are debatable in this post, such as whether gold really ties to inflation rate, and preserves the buying power. I was a little short on time to put more pros & cons together. There are just too many things that you can talk about why or why not you want to invest in gold/silver.

The Real Silver Deficit by David Zurbuchen.

http://www.safehaven.com/showarticle.cfm?id=5204

His opposing claims:

1. Silver is not rarer than Gold.

2. The gold to silver rarity ratio is about 1 to 5, not 5 to 1.

3. Finally, there is nothing factual about the statement that silver is rarer than gold, UNLESS you qualify it with the condition that you are only referring to market accessible silver in the form of bullion. But this is an unfair comparison, because you are including all gold in jewelry form while excluding all silver in jewelry, sterlingware, and privately held bullion/coin forms. Granted, the market price of silver will need to rise a greater percentage than the market price of gold before either its jewelry, silverware, or privately hoarded coin forms become available to the market in large quantities, but the fact still remains that this form of silver is available at some price.

FSN did a recent interview with Jeffrey Christian.

http://netcastdaily.com/broadcast/fsn2006-0722-2.mp3

Personally, I have lingering doubts that global growth (ie. China and demand for commodities) is robust enough to withstand a US slowdown or recession.

The World Gold Council also came up with a June 2006 report on “Short-Run and Long-Run Determinants of the Price of Gold”.

http://www.arpllp.com/core_files/Short-Run%20and%20Long-Run%20Determinant%20of%20the%20Price%20of%20Gold.pdf

A few key findings:

“Whether investors in any particular country gain or lose by holding gold depends on the start date when gold is purchased and the length of the holding period. More specifically, it is far more likely to be profitable to invest in gold when the nominal price of gold is below its inflation hedge price. Conversely, it more likely to be unprofitable to invest in gold when the nominal gold price is above its inflation hedge price.

Finally, we turn to the policy implications of this analysis for potential investors in gold. One important implication concerns a likely US dollar depreciation required to restore balance to the US current account. There appears to be a consensus that US dollar depreciation is inevitable – the only issue being when it will occur and whether the adjustment path will be smooth or disorderly. Jarrett (2005) lists fourteen estimates of the dollar depreciation that would be needed to restore the imbalance in the US current account deficit. These estimates range between 12 per cent and 90 per cent. If gold is a long-run hedge against inflation, and if it is true that real dollar depreciation against other currencies is inevitable, US wealth holders should profit from holding gold during this period for two reasons.

The first reason is that the dollar depreciation will lower the price of gold to investors outside of the USA, and this will raise their demand for gold and raise the US dollar price of gold. That is in addition to the long-run relationship between the US price level and the price of gold. The second reason is that dollar depreciation will likely raise US inflation rates, and gold would act as an inflation hedge during this period.”

While gold is/will be an important anti-inflation hedge and against US-dollar devaluation, if the investor is from a country whose currency is expected to appreciated strongly against the dollar than gold may not be that great a buy.

Paul van Eeden also provides another perspective on how to calculate gold’s true value.

http://radio.goldseek.com/shows/22.07.2006/07.22.06f.mp3

On silver, there was a series of articles in SafeHaven.com strongly challenging the so-called “silver-deficit”. I see if I can dig it out…