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What is in Store for Gold?
April 30, 2009



Gold bugs love to poke fun at economist British economist John Maynard Keynes. He called gold a barbarous relic. Gold bugs have been replying since the 1920s, that if it is a relic, why is it so important?

Also, the current price of around $900 an ounce and news of Chinese buying seems to indicate a robustness that is anything but a relic.

Fun aside, the bright popular image of Keynes as being out of touch and the leader of a school of thought in economics that let inflationary demons loose in the world can be blinding and obscure the critical times when he was right.

One of those times was in the aftermath of the 1929 stock market crash. Early on he recognized the destructive deflationary wave that was swamping the world economy. He was dismissed at the time as peddling inflationary nostrums that were unsound that no rational person could support.

That sounds awfully similar to the current criticisms of the bank bailouts. What if the proponents of the bank bailouts are right and deflation is the greater danger?

It took more than three years for the Depression to unfold in all its ugliness. We are hardly more than two-thirds of a year into the present post-Lehman Brothers failure problems.

In the spring of 1930 many thought the worst had passed. It is easy to be optimistic in the spring. It is spring 2009.

We seem to still be standing even though we have witnessed housing prices down by 30 percent from the peak, oil down by 66 percent from the peak and, my favorite economic indicator, Mint coin production, which is down by roughly the same percentage as oil.

Those numbers look like deflation. If that is so, how long can the price of gold buck the trend?



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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, Bank Note Reporter 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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