The fundamental story for buying gold remains strong - as were...

The fundamental story for buying gold remains strong - as were the fundamental reasons to buy stocks early in 2011 (with a panel of experts predicting the All Ords to finish 2011 at 5300). But the fundamental story is often strongest at the worst posible - near major market reversals (so as to lure in the final buyers at market tops and shake out the final sellers at market bottoms).

Gold & silver generally rise when the economy expands (which coincides with higher inflation) and falls when the economy contracts (which coincides with lower inflation). In fact, every crash in silver over the last 50 years occurred during times of recession. So silver, even more so than gold, is an ideal leading indicator of economic expansion and contraction.

We've seen in recent weeks that gold is not a hedge against economic crisis (actually that's been the case over the last 50 years too). During economic crises people want cash, not precious metals.

Gold is a worthwhile investment during times of hyperinflation, but we're now entering a rare era of global deflation. And during deflation cash is the only asset that assuredly rises in value (purchasing power). Near the bottom of the deflation, several years from now, gold & silver will present remarkable buying for the inflation which is sure to eventually follow.