Here’re 6 reasons to invest in gold.
This post is designed merely to rouse your curiosity.
I want to make it clear that I’m neither expert nor licensed to advise in financial investing, so don’t let my comments lead your investment strategy or thinking.
Do your own research and make your own decisions.
Ok, with my disclaimer out of the way, let’s start with a quick look at the properties of money to set the scene.
Study this, then read my thoughts below:
The paper stuff in your wallet, the digits in your bank account …
they are not money.
Money is a long-term store of value.
The stuff in your wallet and your bank account has been inflated away over the years …
and it’s called currency.
If you’re an oldie, this might help to jog your memory:
Technically, it’s called, fiat currency (not fiat ‘money’).
Fiat currency is decreed by government as the legal unit of exchange.
Gold, on the other hand, is different.
That’s why …here it comes,
Reason 1 to invest in gold?
It is money …
and has been since Egyptian times.
So what other reasons are there to invest in a pet rock?
Well, Reason 1 is closely followed by:
Reason 2 to invest in gold?
Your government or central bank can’t just print more of it.
Also known as Quantitative Easing (QE), i.e. ‘money’, ahem …more correctly ‘currency‘, printing.
In fact, if your government does start printing more currency, gold will go up in value by comparison.
It’s called supply and demand.
When you increase the amount of a commodity in a market (currency included) the value goes down in response.
And they ain’t making any more gold (at least, not in our solar system for a few billion more years).
You want proof?
You could try asking someone living in Venezuela.
The IMF predicts their country will finish 2016 with a rate of inflation of 481%.
And to a lesser extent, there’s the UK.
Here’s the price of gold vs the £ when the Bank of England (BoE) announced a new round of QE (money printing) at 12noon on 4th August 2016.
That’s not gold going up in value per se, that’s the £ going down in value due to more currency supply (i.e. printing / QE).
Got it now?
Let’s keep going …
So gold is great insurance (a hedge in financial parlance), to any of the following:
Reason 3: War
Reason 4: Big government spending / economic mismanagement
Reason 5: Central Bank economic mismanagement
Reason 6: Big bank blowups
and a host of other global ailments
before we look into these reasons in a little more detail, here’s one thing you have to do if you own gold:
You must own it outright and have it stored in a professional vault, or safe.
If you only carry a claim cheque to your gold, you might not get it when the SHTF.
Look at this next infographic.
It’s called fractionally reserved paper trading.
Courtesy of: Visual Capitalist
95% of all gold traded in London (the biggest market) is unallocated.
So there are 20x more claims on the gold being traded than actually exists in the market at any one time.
That’s like owning a 1/20th time-share in a holiday home.
Which is fine when everything is chugging along nicely, but wait until everyone wants to get in it at the same time over the Christmas holiday season.
When that happens with gold, what do you get?
A gold run …
How much gold do you reckon you would end up with once the dust settles?
… And don’t forget the old adage that “possession is 9/10th’s of the law”.
Let me put it this way …
If you only have a paper claim to some gold in a gold rush, I seriously doubt you’ll be the one holding it when it’s most needed.
More likely it’ll be Goldman Sachs, your government, or some billionaire living in a bunker in the Cayman Islands.
So get some of the real stuff, the physical, not just the paper in an ETF, a future, or a gold miner stock.
Of course, in a real emergency, you can’t eat gold.
But thankfully these situations are extremely rare, even during wars and other calamities.
Just to prove this point, let’s say you were unfortunate enough to be living in a war-torn country like Syria.
Or, a big government country like Venezuela.
In these countries, the currency has gone, or is close to going, to dust;
However, if you had exchanged your currency before the crisis, for an equivalent of gold, it would still be worth the same today in $’s (actually more in 2016).
Not to mention a heck of a lot more in your local currency.
If you are reading this from the comfort of an already industrialised nation, then you are probably thinking that would never happen here.
In which case, I advise you to take look at this:
The fact is, the world, and especially the industrialised countries, are sitting on a debt supernova.
Our governments have spent beyond their means.
They’ve bailed out banks with tax payer money and rewarded their corporate cronies with lucrative contracts.
Which means …
One day it will blow up.
What money do you think will hold it’s value when it all goes kaput?
The first money that came onto the scene 3000 years ago.
The money that is made inside the heart of a massive dying star during a supernova and can’t be printed by governments.
Think we are some way off the first blow up?
Courtesy of: Visual Capitalist
Of course, Deutsche Bank hasn’t collapsed yet (at least, as of writing).
But it’s share price is certainly in the weeds.
Besides, I bet you are thinking that the German government will just bail them out if it all went up …?
For reference, the annual German GDP is about $3.5 trillion.
That’s right, the output of the entire German nation for one year is less than 10% of Deutsche Banks derivatives portfolio value.
So, I’m not saying you should invest in gold.
Just study the facts and decide for yourself if you should be concerned or not?
Think. (affiliate link)