Here is a passage from the UN's Conference on Trade and Development’s Annual Report (UNCTAD), September 22, 2016.
“There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis …”
The financial crisis is far from over, it has been slowly ramping up ever since 2008. Bank Bail-ins will come, along with negative interest rates. The Bank of England has taken the first steps towards these by lowering the interest rate for the first time in 7 years. This is not fear mongering, it is fact. When presented with facts we can make a choice.
So how safe are your savings?
Chances are you have never asked yourself the question, should I own gold? And why should you, when all our institutions have ever told you is that paper derivatives are where it's at. However, after considering the following points now might be good time to pop the question.
Why Gold is one of the best commodities on the planet...
1. Gold is rare
I know this sounds obvious but it is always worth a mention. For example did you know more steel is poured in a day than all the gold ever mined throughout history. There are approx. 155,000 tonnes of gold above ground, which is enough to fill three and a quarter Olympic sized swimming pools (8,000 cubic meters).
2. Liquid asset
Gold's liquidity makes it an amazing asset, as it can be bought and sold 24 hours a day all over the world. This is much quicker than other investments to buy and sell in uncertain times, making it crucial in terms of getting your hands on your money as and when you need to.
3. Hidden wealth
A major benefit of holding physical gold is that it is an anonymous store of wealth. No one will know how much you hold unlike ETF's or other paper assets. Plus having your asset to hand is a huge advantage during a banking crisis. It is also worth holding because it is the worlds finite currency and held by most central banks.
4. Gold the safe haven
Known as the crisis commodity, gold allows you to hedge when there is a lack of confidence in a government or the financial markets. It is a great barometer of world events and during the chaos it becomes a safe haven. It is seen as an international currency. Wall Street is not fond of it because it cannot be manipulated or engineered.
5. Hedge against inflation
Being a great hedge against a weak currency and onset inflation, is why the central banks and governments plough into it when the markets are falling, or when there is a round of QE (quantitative easing) which will devalue a currency. The World Gold Council recently pointed out that Central Banks are buying more gold than they are selling (but they won't tell you that), which is a first in decades. So if they are diversifying away from paper currencies and into gold, this will only push the price up. It says a lot about where they see things going!
6. Gold is real money
Gold cannot be expanded with QE or loose lending (relaxed lending criteria) and because of this it is not easy to debase. Governments devalue their fiat currency i.e., dollar, sterling, euro, yen etc., through QE in order to push international trade and exports. Importantly gold is rising against all currencies because people all over the world recognise that a falling currency erodes your purchasing power. So to preserve your purchasing power, you have to hedge against falling currencies in order to protect your wealth. Your purchasing power is also eroded by insidious inflation. This is why many people turn to gold and silver as their preferred money.
7. Negative Interest Rates
Many banks in the global system are introducing negative interest rates. This will kill any incentive to save by making it expensive. And we, in the UK, are moving toward this with the BoE (Bank of England) cutting interest rates for the first time in 7 years.
How much should I invest?
With any folio, diversity is the key to success, and precious metals should be one of several well considered uncorrelated assets. Gold is not a magic commodity that will make you wealthy. But as part of achieving a diversification strategy within a folio it is a great component. As with any commodity you need to be able to sleep at night, so you have to be comfortable with your exposure. There is no set percentage for a folio, it varies wildly from 5% upward.
Not bought gold before? If you are unsure or have any concerns, please contact us.
If this has been of any interest or help please share. And as usual your comments are always welcome!