<i>"Traditionally, in such a scenario, all asset classes would fall relative to gold, but what if gold is no longer considered the standard?"</i><p>
As I read, in a pure deflationary scenario, gold and other commodities would depreciate against fiat currency. Cash would be king. The present credit crunch is deflationary and should make cash valuable. If there was no Federal Reserve or central banks and if the Fed did not have the history it has, I would prefer cash, (T bills). If you had asked me one year ago, I would say that I could definitely imagine deflation where commodities, equities, and real estate would devalue and cash would appreciate. And I would have given that scenario the greater odds of occuring. And I was not willing to game it and go to cash.<p>
Because, the Fed has a history that the Fed will increase the money supply when confronted with anything deflationary, and I did not want to take the chance that I would miss out on what I see will be a monstruous inflation, both monetary and price.<p>
I do not think gold is considered the standard or a standard. I think gold is considered by most to be a barbaric and ancient relic and a tradable commodity for a few. Even with the last couple years rise in the dollar price of gold, I do not see gold on the radar screen of the mainstream investment community. Unlike gold bugs, I do not consider gold to be money. It is not used or accepted as a medium of exchange or a store of value, except by a very, very few. In my mind, by my reckoning, the time to go long on any asset class is before it gains acceptance by the mob and when there are valid reasons to think that it will be. So far, this is working for gold.<p>
Will gold become a standard or money again? I doubt it and would not bet on it. A gold standard would greatly increase the difficulty of the wealthy and the powerful to surreptitiously tax and take from middle and lower class. Nor do I forsee a time when the mob will give up the idea that the government can provide without cost.<p>
I do not see gold as a better asset class than equities or real estate or ... For me, gold is a means to an ends. I see it as undervalued and ready for a cyclical run up in value. Just as residential re is overvalued and ready for a cyclical decrease in value. After gold appreciates to what I think will be a apex, I will sell it for a home and whatever I think the next undervalued asset is. My guess is that will be dividend paying stocks.<p>
I do not see any particular asset class as better than another. To me, it is just a matter of timing, recognizing what the mob is thinking and being willing to do the opposite. I guess some call that recognizing value.
