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Good as Gold? Not Me.
December 29, 2008

Will gold be $1,500 in 2009 or $500? I have to make up my mind shortly because I usually write a column about my forecasts for the new year. The price of gold has been a traditional topic for me.

I have forecast mostly higher gold values since the market upturn began in 2001, including the forecast that in 2008 gold would hit $1,000 an ounce at some point during the year, which it then did in March.

My crystal ball was cloudy enough that I did not write that it would close the year at $1,000. That certainly can still happen. There are three days left for trading and when gold starts motoring higher it can move in large increments.

Higher gold prices would be good for the numismatic industry. It feeds dealer cash flow and it is a psychological boost to many coin buyers, though every time I write that I usually get a response from someone that gold speculation and coin collecting are not the same thing. True, they aren't, but they sure hang around together a lot.

The "but" in my situation is that growing unemployment and the huge falls in other commodities makes gold an outlier. Is gold simply the last to fall, buoyed up by enthusiastic buyers egged on by online newsletter writers? That's my worry.

Gold is an inflation hedge. It is a way to preserve purchasing power. These two facts do not necessarily add up to its price being immune to a price decline stemming from deflation. Deflation means the purchasing power of the dollar goes up. That means to have the same purchasing power, gold's price would decline.

The fact that we haven't had real deflation since the 1930s makes the possibility seem remote, but it is large enough that it is making me think more about it than I have since my college economics classes.

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About the Author
David C. Harper has been a coin collector since 1963. He joined the Krause Publications editorial staff in 1978 and is currently editor of Numismatic News and World Coin News. He also edits two books annually, North American Coins & Prices and Coin Digest. He is the author of the Class of '63 column that runs each week in Numismatic News. His first bylined numismatic article appeared in the June 1971 issue of Coins Magazine and his various Krause Publications assignments included a stint as editor of the magazine 1980-1983. Harper received a bachelor of science degree from the University of Wisconsin-Oshkosh in 1977. He had a double major of journalism and economics.

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