Oil and gold to join the free fall syndrome – deflation in action in the world wide economy
Peter Oberois
Mar. 4, 2007

The worldwide stock market collapse in the last few weeks resembles the deflation driven markets in 1929 and in late 1980s in Japan. These normally result in deflation driven serious slow downs and even depression in the economies. The stock market now has been hit hard. The margin calls have started accumulating. The hedge fund redemptions have started as they are bleeding now.

The question is what really happens to gold and oil? The answer lies in analyzing how deep is the worldwide deflation. When you take out the foreign investment and borrowed-money prosperity in India and China, emerging countries are in deepest trouble ever. The Chinese authorities that have the tightest control over their economy understand that well. China is not going allow tax heaven for FDIs – the foreign direct investments as it has not created evenly distributed prosperity for the rich and the poor in China. Indian hyperinflation has scared the ruling Government of Congress party – the ruling politicians have been routed in state level elections.

The so-called ‘globalization’ fiasco in absence of currency parity is finally coming to end. The effect on oil and gold is very extreme. As real estate market collapse depress the economy in America and Euro zone, as Japan fails to come out of deflation, as India and China face economic depression after the burst of bubble driven boom, the demand for oil and gold will start collapsing.

Oil and gold now will head lower sharply and decisively. The metals will follow suit also.

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