If the world around us collapses, gold may be our only saving grace
In an increasingly worrying world there are numerous factors that could bring stock markets crashing back to earth, but gold has stood the test of time as a wealth insurance policy
Posted: Wednesday , 06 Apr 2011
All is not well with the world! A seemingly obvious statement - is it ever? But recent events put us all on a more precarious footing than perhaps we have been since the onset of World War 2. Maybe the risks ahead are not military - although the chances of getting sucked in to a Sunni-Shia conflict masterminded by Iran in the Middle East and North Africa - or perhaps China flexing its military muscles over Taiwan, may become increasingly real as the days, weeks and years progress.
But the main threat to our relatively comfortable existence in the West is the economy stupid! The economic facts of life are increasingly making life more and more difficult for the man in the street. Governments, trying to recover from profligate spending in the past, are being forced into really strict austerity measures and the general public, used to years of easy credit and apparent financial wellbeing, don't like it at all. After all why should they suffer because Governments have been incompetent and built up their expectations to unrealistic levels. Now governments are facing difficulty in meeting their commitments - and it's not only the well-publicised basket cases which are in trouble, like Portugal, Ireland and Greece, but even some of the much bigger economies - Japan, the U.K, the Benelux countries, perhaps France and Germany even, and probably a batch of east European nations struggling to service debts as their credit ratings are lowered.
And top of the pile is the good old U.S.A. which has been printing money in volumes which are almost beyond belief to a rational thinker - with the Europeans and Japanese not far behind. This money is supposedly to help buoy up the economy and stock markets have been rising - and rising well. Good result you might think but the only sectors which have really been benefiting have been the financial institutions which probably can't believe their luck. They get effectively zero cost cheap money from the government so they can boost their earnings and pay themselves annual bonuses that it would take the average worker several lifetimes to earn. If that isn't the kind of stimulus to drive the workers to the barricades I don't know what is.
Sooner or later this house of cards all has to come crashing down. You can't pump out more and more money into the economy without stimulating serious inflation. The only reason it hasn't happened to the extent it might so far is that the money isn't really going into the general economy, but into the banks who are still loath to loan it out to any company or anyone they see as offering the tiniest risk.
When the proverbial hits the fan and workers do man the barricades and the bankers are strung up by their unmentionables, the markets will crash and the man in the street will be faced at the same time with raging inflation. Recipe for a bloodbath.
OK - yes I exaggerate, but it has happened in the past - France and Russia are prime examples where the populace rose up, and most bloodily defeated the establishment which was seen as benefiting enormously while the poor got increasingly poorer. One could say that that is what is happening now - and something similar has already been the case with the recent Arab unrest. True some of this may have been partly religious in its roots, but it was basically the plight of the poor which gave the religious zealots an opportunity to exploit their sufferings. This is what happened in Iran -the biggest of the Arab nations - when the Shah was booted out in the late 1970s and what is happening today in Libya, Yemen and some of the Gulf States where autocratic rulers, seen as salting away their countries' riches, have been dominant in the past.
Ah, but the European countries and the U.S. are democracies - this doesn't apply some would say. Democracy can lay the seeds of its own destruction - it has a defining weakness. The populace elects those who promise the most. And ultimately this becomes unsustainable and that is what is happening right now. True we have democratically elected governments but politicians are seen as increasingly out of touch, the wealth is in the hands of just a few who have been clever enough to play the system - it might just as well be an autocratic government as far as the bulk of the people who feel increasingly disenfranchised are concerned. Seeing the huge amounts of money bankers and top businessmen pay themselves the people become disillusioned. So far in Europe this has largely resulted in marches and minor riots, but we could be sitting on a powder keg. Minor riots could become major ones and so on.
What this means overall though is that one needs to find a way of protecting what one has scrimped and saved for in one's lifetime, and tangible assets - of which gold and perhaps silver are the most important - look to be by far the best investments. Even a small degree of civil unrest will drive the stock markets down sharply and while even gold may fall, as people struggle for liquidity and sell anything which is tradable, it is unlikely to fall as far and fast as the stock markets themselves may. Currencies are devaluing against precious metals by the day - and this could accelerate. Silver on the other hand could tank in a market collapse (as in 2008) which is why I am a little more hesitant about its future if a market crisis should re-occur, but it certainly is having a great run at the moment and is likely to benefit further before any collapse happens.
But gold, which has had another strong run over to new record levels over the past few days in response to global economic and civil breakdowns, and occasional hiccups in U.S. data which may seem to suggest recovery is not happening as fast as the politicians, who have a vested interest in talking it up, say it is, remains the safest bet for wealth preservation as it has for many hundreds of years past..
Gold has stood the test of time as a protector of wealth - not necessarily as a growth investment, but as an insurance policy against market collapse and/or rampant inflation. One is conditioned into gold as wealth from the earliest fairy stories where wealth is always counted in gold, so there is a psychological predisposition to its function in this respect built into us from childhood. Don't knock it - it will probably stand you in good stead. Everyone should thus hold at least a significant portion of one's wealth in the yellow metal.