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Contrary Investor - Market Observations - GOLD

Market Observations:

If there is one lesson to be learned from the Japanese experience with deleveraging over the past few decades it’s that deleveraging cycles have there own special rhythm of reflationary and deflationary interludes. Pretty simple thinking as balance sheet deleveraging by definition cannot be a short term process given the prior decades required to build up the leverage accumulated in any economic/financial system. If deleveraging were a short term process, it would play out as a massive short term depression. And clearly any central bank would act to disallow such an outcome, exactly has been the case not only in Japan over the last few decades, but now also in the US and the Eurozone. We just need to remember that this is a dance. There is an ebb and flow to the greater (generational) deleveraging cycle. Just as leveraging up was not a linear process, neither will the process of deleveraging be linear. Why bring this larger picture cycle rhythm up right now? The recent price volatility we’ve seen in assets that can be characterized as offering purchasing power protection within the context of a global central banking community debasing currencies as their preferred method of reflation for now, specifically recent the price volatility of gold.

Time to step back and have a look at the “rhythm” of gold over the last decade to hopefully provide perspective on not only the price of gold itself, but really on the...


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