With global politicians (and a great many of their constituents) unable to come to grips with impossible levels of debt and spending, it seems that gold is an easy and certain way to hedge against the disaster that seems unavoidable. The logic seems perfect, and it is reinforced many times daily by ads on radio and TV. While I happen to think that gold looks like a really good solution to insuring against the danger, I always worry when something seems like a "sure thing." Let's take a look at some charts and then consider alternate scenarios.
The weekly chart shows that gold has been making new, all-time highs on a regular basis. it has been in a rising trend channel since 2009, and a steeper trend line has been established since the beginning of this year, which combined with the top of the trend channel gives us a rising wedge pattern. The wedge suggests that a move to the bottom of the trend channel may be coming.
The monthly chart offers another perspective regarding the 2011 rising trend line. It suggests to me that prices may be in the process of setting a more accelerated rate of ascent in an advance that is already parabolic.
The charts look positive and likely to stay that way, so what could go wrong with this picture? Well, the government could confiscate your gold. They have done it before, and they could do it again. But I am really more interested in challenging the assumption that the ultimate result of all that global debt will be hyperinflation.
There are plenty of examples of individual countries where the result of stupid fiscal/monetary policy has resulted in hyperinflation, but these examples take place in the context of a global economy that is, shall we say, relatively stable. The question I have is what will happen when global economies start collapsing like dominoes? Will deflation become a problem, rather than hyperinflation? I don't know the answer to that question, and considering the general consensus on this subject, it will probably be looked upon as a stupid question. But I think it is something to consider.
Bottom Line: Gold looks solid now, and it seems painfully obvious that gold is on track to reach much higher prices, perhaps inconceivably higher prices, but the future doesn't always turn out in the obvious way, and a global financial meltdown will affect things in ways that most people have not thought of. While I personally have a large percentage of my assets in gold, every time I consider going 100% into gold I remember that there is no such thing as a sure thing.
