We can learn a lot about deflation and present risks in the world economy (as well as human behaviour) by studying the experience of Japan over the past 30 years. A couple of excellent articles on this topic the past few days, see: NY Times: Japan goes from Dynamic to Disheartened.
There are significant similarities between the global trade and savings imbalances that came to a point between the West and Japan in the mid-80's and the West and China today.
By orchestrating a massive appreciation of the yen in the mid 1980s, the US condemned Japan to decades of stagnation and ended the challenge to its own economic hegemony. Effectively, Japan was forced to commit financial hara-kiri.
This theory, once confined to Japan’s nationalistic fringe, is now being used by the Chinese authorities to justify their resistance to a substantial revaluation of the renminbi. By so doing they are misdiagnosing Japan’s woes and misperceiving the true threat to their own economy. The threat to China does not lie in an appreciating currency, but elsewhere…
See: Emerging Markets at risk from a gigantic bubble.
The challenge of participating successfully in asset bubbles is the difficulty of timing one's entry and exit points. Guessing the timing of a mania is a high risk proposition whether it be stocks, commodities, real estate, gold, or any other “investment” theme that becomes widely embraced and heavily endorsed. I confess I have no idea how much higher gold can go, or when the bull run will finally end, but I do know that at some point, it will be the short of the decade. Watch: FT.com video: Record Gold.