First, our regular disclaimer whenever we blog about gold and silver prices: We have no idea what the trends will be. At our Maui pawn shop, we buy and sell metal every day but we are completely at the mercy of the world price.
Each day, when we open the computer to see where gold went, it is a surprise.
That said, we read the opinions of those who do claim to be trendspotters with interest. Late last year, the smart guys on Wall Street were pretty much agreed that gold would drop during 2014, probably to a price near $1,200 an ounce.
For a while, they looked like soothsayers. On Dec. 30, the price dropped below $1,200 for the first time in a long time.
So what did the world say to the smart guys? So far, it’s been a big Bronx cheer. Gold is up well over 10% even after taking a bit of a dip today.
Of course, most of 2014 is yet to come and maybe gold will start dropping in a big way. There’s a scary report from the International Monetary Fund (summarized at Bloomberg News) warning about deflation, especially in Europe and emerging markets.
Deflation is generally bad for gold, as when you make fiat money (dollars, money that is money because the government says it is and everybody agrees to go along) more valuable, metal becomes less valuable. In fact, deflation is generally bad for everybody because it becomes harder for everybody to pay their bills.
Very low inflation, “if below target for an extended period, could de-anchor longer-term inflation expectations,” the IMF economists wrote. It “also complicates the task in the periphery where the real burden of both public and private debt would rise as real interest rates increased,” they said.
Translated, this gobbledegook means that inflation, which is good, or, at least, essential to a modern economy, has been tamed all too well and if luck is not with us, we could experience another crisis like we had in 2009.
Of course, some people think the IMF has been prescribing bad medicine since, oh, forever; and it would be a good thing to ignore those guys.