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Japanese pensioners sell their gold

asahi goldAsahi recently posted a story about Japanese pensioners who are selling their gold.  Remarkably the perception of gold has been quite a bit different in Japan than around the rest of the world.  The country as a whole has been a net exporter of gold since 2006 and according to the World Gold Council, Japan is the only major economy where the demand for gold is decreasing.

Many Japanese, who have become accustomed to their deflationary environment, view the recent high prices in gold as an opportunity to take profits.  What they fail to understand is that for a country like Japan, whose debt exceeds 200% of its GDP, deflation is only a temporary condition.  Whereas inflation (and hyperinflation) can reduce the real cost of a debt burden – and actually bring unsustainable debts back into the realm of manageability – deflation cannot.

At some point Japan will be forced to face the harsh reality that awaits every bankrupt country.  They will either have to openly default on their debt or radically revalue their currency lower.  Neither scenario will leave recent sellers of their gold very happy with their decision.

Interestingly enough, the article notes that the only group showing interest in owning gold are the retired  bureaucrats from the finance ministries and agencies.  They seem to grasp the unsustainable nature of the status quo.

The situation is the same in the United States where we have the added wrinkle of possessing (for now) the world’s reserve currency.  The highly complex machinations of the global finance systems can, in the short term, produce counterintuitive moves in which wealth seeks the dollar and treasuries over gold.  But this too is a temporary aberration.

The United States government is bankrupt and even a return to historically normal interest rates could render our debt obligations unserviceable.  No paper, be it currencies or debt, will be safe under those circumstances.  Only gold and silver will be left standing as the true stores of value.

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