Inflation, Deflation And Gold

There's an old saying in the newspaper business that dog bites man is not news, but man bites dog is. This observation still holds true even under today's faster and looser standards of journalism.

By this standard, the gold market may be getting ready to give Fido a hefty chomp on the shins by rising in what is alleged to be a deflationary environment. Let's look at some key quantitative indicators of the gold market, including the inflationary expectations embedded in the bond market, the dollar and gold lease rates.

Two principles are important here: First, the price of any physical commodity will rise if the expected rate of inflation exceeds the costs of holding it. Second, the price of any physical commodity will rise in a given currency if that currency becomes worth less.

TIP-Toe Through The Minefield

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