Comments on: Fleckenstein: Protect yourself from Financial Armageddon with gold http://www.creditwritedowns.com/2009/03/fleckenstein-protect-yourself-from-financial-armageddon-with-gold.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: hbl http://www.creditwritedowns.com/2009/03/fleckenstein-protect-yourself-from-financial-armageddon-with-gold.html#comment-4162 hbl Mon, 02 Mar 2009 20:14:48 +0000 http://www.creditwritedowns.com/?p=6569#comment-4162 While I understand the arguments about gold doing well in any times of major economic uncertainty (inflation or deflation) there have always been two big factors that concerned me regarding the sustainability of its price: 1. What happens when gold jewelery demand dries up? (Traditionally 70% of gold demand is for jewelry). 2. What happens when the world's highly leveraged economies <a href="http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/" rel="nofollow">fail to create inflation</a> -- how many who bought gold for inflation protection give up and sell for cash or even treasuries which at least yield something? Now I've seen anecdotally that jewelry demand (#1) may have already collapsed and been filled in by investment demand... So the remaining question for me is how #2 plays out -- no matter how bad deflation gets will inflationistas always assume hyperinflation is right around the corner or will they give up either by choice or forced liquidation? The <a href="http://benbittrolff.blogspot.com/2009/02/gold-massive-catalyst-required.html" rel="nofollow">cliff diving possibility</a> has always seemed very real -- despite being far from certain. While I understand the arguments about gold doing well in any times of major economic uncertainty (inflation or deflation) there have always been two big factors that concerned me regarding the sustainability of its price:
1. What happens when gold jewelery demand dries up? (Traditionally 70% of gold demand is for jewelry).
2. What happens when the world’s highly leveraged economies fail to create inflation — how many who bought gold for inflation protection give up and sell for cash or even treasuries which at least yield something?

Now I’ve seen anecdotally that jewelry demand (#1) may have already collapsed and been filled in by investment demand… So the remaining question for me is how #2 plays out — no matter how bad deflation gets will inflationistas always assume hyperinflation is right around the corner or will they give up either by choice or forced liquidation? The cliff diving possibility has always seemed very real — despite being far from certain.

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