Gold assets and futures have reportedly seen a massive pullback in recent weeks, even as the US government implements the sort of policy that is supposed to drive demand for “recession proof” assets.
The reality is that nothing is catastrophe proof, and a collapse of the economic system can’t be described any other way.
Gold continued its downfall today at an accelerated pace, and gold bugs, as expected, have been relatively quiet.
Federal reserve policies of late have been overt in distributing excess funds into the economy, an economic phenomenon called inflation.
Inflation can temporarily boost economic activity, as banks become more willing to lend money, but it can have deleterious long-term effects, including but not limited to a degradation in average wealth and stagflation.
If you bought $10K worth of _____ ten years ago it would be worth ______
Gold / $15K
Bitcoin / $26B
But shhhh… don’t tell @PeterSchiff he’s just focused on short term price swings
— Tom ? (@ThomasSchuIz) September 28, 2019
When such times arise, assets like Bitcoin or gold are supposed to present a safe haven, but thus far it’s unclear if that will ever truly be the case. In order for an asset to be considered a safe “store of value,” you need at least be able to reliably get out what you put into it.
There Might Be No Recession Proof Assets
Real estate can thus often be considered a store of value, as its value often rises, rather than falls, with time, in real dollar terms, despite external factors like inflation.
When the economy goes into crisis mode, however, even real estate can become a gamble, with people forgetting why they invested in the first place. Billions in mortgages defaulted the last time around, and there’s some speculation that a new, similar crisis is creeping up in the form of co-working and similar rental spaces.
The reason for this is that a lot of these places don’t have proper documentation with their subleases. Therefore, many of the tenants can just walk anytime, without any real penalty – which puts the landlords in an awkward position, if things get tight for the businesses.
So you could see a domino effect. Businesses take in less money and begin to default on their leases; co-working space companies begin likewise defaulting, as their clients hit the road.
In such a scenario, inflationary dollars would theoretically buy you less, and precious metals as well as assets like Bitcoin should appreciate. But we may soon see a period where that is simply not the case.