Gold, Worsening Deflation & the Biggest Catalyst for Precious Metals

Posted by Jordan Roy Byrne via Daily Gold

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By now, everyone has seen the chart of Homestake Mining and its bull market run from 1924 through 1935. Hence, there is no need to repost it. In this editorial, Frank Barbera shows a handful of charts of gold stocks and gold stock indices during the Depression era. US Gold producers apparently bottomed in 1929 while the Financial Times Gold Index bottomed in 1931. The time to buy the gold stocks was when deflation set in. More recently, the time to buy gold stocks and physical (Gold or Silver) has coincided with fears of deflation.

Below is a chart that that shows the Google search volume for “deflation.” Predictably, there is a big spike at the end of 2008. There is also a mini-spike in 2010. Unfortunately Google doesn’t have search data pre-2004. Policy makers had a fear of deflation during 2002 and 2003.


Below we plot Bonds, Gold, Silver and the HUI Gold Bugs index. We highlight the periods in which deflation fears emerged. That would be 2002-2003, October 2008 and briefly in the spring of 2010. All of course were buying opportunities within the bull market in precious metals. Note that the peak in Bonds in 2005 coincided with a major bottom in precious metals.


So why does the onset of or fear of deflation act as a catalyst for the precious metals sector?

….read more HERE