What happens to Gold & Silver during Inflation, Deflation, Stagflation, & Biflation.

Here's the answer from newsletter writer David Morgan:

Professor Roy W. Jastram of the University of California at Berkeley when he penned the book called, The Golden Constant. “Just how does silver perform during inflations or deflations?” Professor Jastram explained this question when he wrote a second book titled, Silver: The Restless Metal.

As far as the study goes back in the English history, silver did very well in periods of deflation, not inflation, with the exception of the deflation from 1873 to 1896 where, basically, it was demonetized and we were gold only. Even then, it behaved well, going down only 6% in purchasing power.

US review: The record for the two precious metals is remarkably similar. Both lost purchasing power in every inflation in the United States until the last period mentioned, 1951 to 1979, where silver out-performed gold. What adds interest to this similarity is that silver was effectively demonetized in 1834, whereas the gold standard prevailed a century longer. It is true that the U.S. Congress was fiddling with the silver market from 1807 through 1920, but the effect was to put a floor under the silver price, with the gold price being strictly set. And from 1933 until 1975, U.S. citizens could not buy gold. However, precious metals have a long-standing reputation as hedges against inflation. Jastram writes, “This is not valid based on evidence of a century and a half in the United States and more than three centuries in England. The truth is, in most cases, the two metals, yes, both silver and gold, gained operational wealth in deflations.” From a long-term perspective, gold has held its purchasing power very well in the United States.

Gold will generally do well in inflation, unless that inflation is caused by excessive optimism wrt future earnings driving credit creation to fund equity investments through the roof, like in the 90’s.

In deflation, gold will do less well, unless and until people start worrying that stimuli to break out of deflation is so strong as to soon turn it into uncontrollable inflation. Though we are likely going to experience deflation for some time, if BoomBoom does decide to throw caution over board and literally starts dropping trillions from helicopters, I will be happy I have some gold.

Another factor is that any big monetary upheavals as a result of fed mismanagement and fracres banking in general, whether deflation or inflation, makes it (at least slightly) more likely that the fiat money crowd will be booted out in favor of those preferring sound money. If that’s the case, gold will really be ‘worth its weight in gold’.

Saying anything about silver is complicated by the fact that so much of it is used industrially, and its value is therefore much more dependent than gold’s on performance of the real economy, as opposed to purely monetary factors.

One thing about US Gold Eagles is they do have a legal tender value of $50. Just an interesting fact.

The reason that gold is so attractive during troubling times is that it will always retain its purchasing power. During deflation, the price of gold may fall, but it still maintains its purchasing power. Unless scientists develop some way to drastically increase gold production output(not very likely), gold isn't likely to lose any real value.

"My theories explain, but cannot slow the decline of a great civilization. I set out to be a reformer, but only became the historian of decline."
- Ludwig Von Mises