i have this inflation / deflation argument all the time with people. usually i find their arguments shallow at best and stupid at worst.

the basic thesis behind deflation is that all risk asset prices go down. i always make the same points:

1. gold is money, not a 'risk' asset.

2. in a truly crushing deflation, which is what deflationistas seem to be calling for, not only do risk assets collapse, but also governments and societies.

case and point? iceland. their economy has literally imploded because of debt deflation. you know what went along with it? their currency and their society.

the u.k. is in the grips of a crushing deflation. you know what else is going down? the pound.

europe? ditto.

and let's not forget what happened to gold during the 1930's deflation; it went up against all currencies, whether those currencies were on a gold standard or not.

one thing these people are missing is this : in a recession, gold goes down as jewelry demand softens, dampening the price. in a depression, the slack in jewelry demand is made up for by societies and nations trying to protect their wealth by buying gold as a reserve asset. that is exactly what you are seeing now.

as far as i'm concerned:

1. dent called for 36,000 on the dow. he has no credibility.

2. prechter made one good call in 1987. i need more datapoints.

3. napier claimed that mining stocks are a bad investment during deflation as they will move with the general stock market. i guess his research didn't include the 1930's?