Bill Bonner says there is some evidence that deflation is winning the battle against inflation in the US. Investors are returning to low-yielding Treasury bonds in the hope inflation will fall and consumers will find their feet again. But Bill says gold is not only the safest place to invest during this crisis but it is now also dirt cheap at around $800 an ounce.

This from The Daily Reckoning:

For a long while, we described the financial world as though it were a war – a battle between the natural forces of deflation (following a bubble)…and the unnatural forces of inflation (as the feds continue to pump up the supply of money and credit).

Early this spring, inflation had the upper hand in this war. Prices were soaring for oil, metals, food, fertilizer – and just about everything else. Commodities were going up because the go-go economies of Brazil, Russia, China and India were going so fast. And not only were their raw materials prices moving up fast, so were there internal labor costs. So, instead of exporting lower priced goods – as they had been for the last 15 years – they began to raise prices too.

Then, the gods of financial war went over to the other side. The emerging economies slowed down. Demand for commodities slumped. The price of oil dropped from a high of $147 down to $106 on Friday. Gold fell down below $800. Yesterday, it rose $2.80 – to end the day at $806. And bonds too are signaling a weaker economy. The 10-year T-Note has risen in price to yield only 3.66%.

What is behind this shift in the fortunes of war? Why are the feds losing this battle?

Well, it’s not clear that they are really losing. So far, they are beating an orderly retreat. The economy is pulling back. But the feds believe they can still win. Curiously, all the shooting and casualties have encouraged investors to seek safety. They believe they’ve found it in the U.S. dollar.

Investors expect lower inflation rates; that’s why they’re willing to buy U.S. bonds and notes at yields well below the current inflation rate. As long as the dollar holds, and inflation rates are under control, they figure they can continue pulling back in good order…until the U.S. consumers get back on their feet.

We don’t know what will happen. But that doesn’t prevent us from taking a guess – that it ain’t gonna work that way – and hang on to our gold. Take advantage of the dip in the precious metal’s price…see here: Zero-Downside Gold

Source: The Fall of the Giants