There’s a Whiff of Deflation in the Air…

Much has been made of the ongoing sell-off in the crude oil market. Declining oil prices have been widely discussed in recent months on various financial media platforms and even just this past week, falling oil drove stocks significantly lower.

Crude oil fell below the $30 per barrel mark this week for the first time in 12 years as ongoing concerns over the Chinese economy took their toll and as the notion of even more supply hitting the market weighed on prices.

Stocks have been largely focused on falling oil and with good reason. Lower oil and other commodities could potentially be pointing to widespread deflation.

Deflation is defined by Wikipedia as: “A decrease in the general price level of goods and services.” It is believed that deflation is problematic for several reasons including increasing the real value of debt and the spiraling effects it can have on an economy.

Just ask someone in Japan…

Deflation can lead to many problems such as increasing unemployment, factory and business closings, lower corporate profits, declining incomes and increasing defaults.

To put deflation into perspective, consider this:

You work for company ABC which manufactures widgets.

As overall prices fall, your company can no longer charge $20 per widget but must now lower prices to $15 per widget.

As your company lowers the price for its products, the company sees reduced profits. As profits are reduced, the company cannot look to expand.

As demand and profits fall, companies may be forced to begin layoffs. Assume for a moment that you lose your job.

Because you are now unemployed, you will look to limit spending as much as possible. You will attempt to cut spending to only the essentials and any discretionary spending will be slashed or non-existent.

If you are unable to find a new job, you could go into default on your mortgage, credit cards or other obligations.

As prices continue to drop, economic activity dries up further increasing layoffs and defaults. Many companies will go into survival mode and will refrain from any hiring or expansion.

And the cycle continues…

As the price of goods and services falls, so too can asset values. The value of your home and investments could see significant declines as well.

How would you feel if you saw your overall net worth decline by 20,30 or even 50 percent?

Deflation is a very real and potential threat RIGHT NOW…

Lower crude oil, lower copper and other falling commodity prices all point to the possibility of widespread deflation.

If Chinese demand continues to decline, this problem may be exacerbated further…

NOW is the time to take action. Now is the time to diversify your portfolio with assets that may potentially hold their value or even possibly increase in value during periods of deflation.

NOW is the time to consider adding precious metals to your portfolio.

If the globe does in fact encounter widespread deflation, equity prices could fall by 50 percent, commodity prices would collapse even further and bond spreads could go nuts.

The Fed would likely have only one option in such a scenario: Massive quantitative easing.

Such easing can erode the value of the dollar and potentially lead to massive inflationary pressures down the road. While the thesis of QE and inflation has been wrong thus far, we believe that eventually it will be seen. It is simply a matter of time.

The panic and risk aversion that could be seen in such a scenario is significant. Gold and other perceived safe haven assets could be purchased quickly and decisively as economic conditions deteriorate. Gold and other precious metals could have a lot to gain if the dollar collapses.

Eventual inflationary pressures are simply another reason that gold and precious metals make sense.

A period of severe deflation could be in the cards, followed by a massive monetary injection by the Fed leading to inflation in the future.


Don’t wait for gold and silver prices to rise from current levels. Explore your options today. Advantage Gold representatives are standing by to answer any questions you may have and to show you the most convenient way to acquire physical gold and silver. Call us today at 1-800-341-8584.

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