Gold – Your Wealth Insurance Policy

Gold – Your Wealth Insurance Policy

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Gold as a wealth insurance policy is looking more attractive all the time…

Moody’s downgraded Portuguese and Hungarian bonds to junk status last night.

And yesterday there was a run on Latvian bank, Bankas Snoras AB.

Latvians Queue Up To Withdraw Their $95 A Day Allowance
Latvians Queue Up To Withdraw Their $95 A Day Allowance
Source: Zerohedge

From Zerohedge…

‘Depositors can withdraw 50 lati a day beginning today for the rest of the week, said [Irena] Krumane [head of Latvia’s bank regulator] at a press conference.” At today’s rate this is about $95.’

And that’s on top of every other Eurozone issue you’ve read about in Money Morning over the last two years…

But so what?

The ECB will start printing money soon, right? They’ll buy up Spanish and Italian debt… won’t they? (ECB officials have given no indication they will do this but the markets think they are bluffing.) We’re not so sure.
If you’re not so sure either, we have some advice for you…

One of the safest ways you can hedge against a lack of confidence and trust in the financial system is to own physical gold.

When you own physical gold – and have it stored securely – your assets are outside the financial system. No matter what happens to financial markets, you have a portion of your wealth out of harm’s way.

Think of it as wealth insurance.

Given the intractable problems within the European Union and the latent debt crises in Japan and the US, gold is one of the only assets I can see increasing in value significantly in the next five years.

Where could gold prices go?

US$5,000 an ounce is possible as trust and confidence in the system deteriorates.
Part of the psychology of a bear market is that investors slowly change their thinking from ‘how to make money’ to ‘how not to lose it’.

And each year, more and more investors will want to take out insurance in the form of gold. This means they will move a portion of their assets out of paper (say government bonds) and into physical metal.

And I’m not just talking about individual investors.

I’m talking pension funds and insurance companies. Once they realise their vast holdings of ‘risk-free assets’ (government bonds) are not risk free, they will start to allocate a small portion of their capital to physical gold – the great protector of wealth in times of financial turmoil.

But that is all in the future.

The chart below shows the US dollar gold price since 2006. Can you spot the trend?

After advancing to record highs earlier this year, gold is now in a ‘consolidation’ phase. How long this lasts… who knows. If Europe implodes, we could see another sickening 2008 type correction.

We’re putting a low probability on that outcome though.

Since 2009, gold has held above the 200-day moving average (red line) and I think that will continue to be the case.

Gold Spot Price
Click here to enlarge

 

Greg Canavan
Editor, Sound Money. Sound Investments

Publisher’s note: Greg Canavan is the foremost authority for retail investors on value investing in Australia. He’s the former head of Australasian Research for a major asset-management group and a regular guest on CNBC, Sky Business’s ‘The Perrett Report’ and Lateline Business. Greg shares his insight, ideas and investment recommendations with readers of his Sound Money. Sound Investments newsletter… to find out more information on Greg’s letter, go here.

 

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For editorial enquiries and feedback, email moneymorning@moneymorning.com.au

Greg Canavan

Greg Canavan

Contributing Editor at Money Morning Australia

Greg is the Managing Editor for the Daily Reckoning Australia. He helps investors preserve their wealth over the long term using a method known as value investing. Lucky for Money Morning readers, he imparts some of this knowledge on them too with regular guest editorial spots.

Greg Canavan is a feature Editor at the Daily Reckoning Australia and is the foremost authority for retail investors on value investing in Australia.

He is also the Editor of Crisis & Opportunity. An investment publication designed to help investors profit from companies and stocks that are undervalued on the market. Greg is the former head of Australasian Research for an Australian asset-management group and has appeared on CNBC, Sky Business’s ‘The Perrett Report’ and Lateline Business. He has written articles for The Sydney Morning HeraldThe Australian and www.ninemsn.com.au. Greg’s aim is to help you create a portfolio of stocks based on sound, proven, investing principles. His system for identifying stocks trading beneath their ‘intrinsic’ value combines a big picture understanding of the financial markets with a thorough valuation analysis of individual securities.

Greg’s method of investing is not about taking huge risks and rushing into big positions. He investigates highly profitable companies trading at a reduced premium to their net asset value, or ‘equity’ value as he puts it – and passes that research on to his subscribers to incorporate into their financial plan as they see fit.

With Greg’s help, you can implement a long-term wealth building strategy into your financial planning, be better prepared for the tough financial challenges ahead and stop making the basic, costly mistakes that most private investors make every time they buy a stock.

To find out more Greg’s investing style and his financial worldview take out a free subscription to the Daily Reckoning here.

And to discover what a company’s profitability reveals about its true value…and more importantly how you can use that knowledge to become a better, smarter investor, take out a 30 day trial to his value investing service Crisis & Opportunity here.

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19 Comments on "Gold – Your Wealth Insurance Policy"

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Peter Fraser
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Peter Fraser
5 years 8 days ago

They will print, and they will print like never before, that will drive up the price of gold in Euros, but I don’t hold Euros.

So exactly how will that affect me?

KP
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KP
5 years 8 days ago

Well, they are talking about a haircut for those who invested money, but it will probably just end up a quick trim. The bugbear is to collapse the insurance they took out as CDS’ so the banks don’t have to pay out. That means Greece doesn’t default, in the new meaning of the word, even if it has the same effect or worse, in the old meaning of the word!.

Nice to see the New York times getting onto it.

http://www.nytimes.com/2011/11/20/business/credit-default-swaps-as-a-scare-tactic-in-greece.html?_r=2&emc=eta1

Peter Fraser
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Peter Fraser
5 years 8 days ago

KP – I might have this wrong, but the insurer should then seek restitution from Greece – the country doesn’t get off Scott free, otherwise all debtors would walk away.

There is a problem when banks are told to invest in sovereign funds – eg Greece to fulfil their BASEL requirements, and then they are told to write down loans at precisely the same time as they are being told to buy more sovereign debts to fulfil the new BASEL requirements .

They will print, they have no choice.

Drood
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Drood
5 years 7 days ago
PF@1 It will drive the price up inUS dollars as Gold ( and most other stuff ) is traded as such. The Aussie dollar cannot appreciate much more without destroying Aussie tourism , trade and immigration , ie the Aussie economy. Therefore we too will eventually print or go bust and then print. The mining boom will probs last another couple of years at most as most international miners are moving into Africa where they have cheap labour, startup costs and pay even less in taxes and royalties than they do here. When that happens ( and if you do… Read more »
TRB
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TRB
5 years 7 days ago
Again I stand alone with independent thinking and say deflation! Germany has painful disgusting memories of hyperinflation and the result was extreme violent ideas and total wipe out of savers. Do you really think Germany is going to let the central banks of Europe have a easy ride and print away? All ready the leaders of Germany are saying “NO” to euro bonds and great pressure is being apply from German taxpayers not to bail out weak corrupt nations. As for China and hyperinflation in US the tide is changing gold bugs, warning signs are all there. German voters,occupy wall… Read more »
Peter Fraser
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Peter Fraser
5 years 7 days ago

thanks drood (why do you call me foster? Do you have me confused with someone else, or is that a slur? I am NOT Peter Foster of several scams, I am who I say I am)

TRB – where was the printing press invented?

Drood
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Drood
5 years 7 days ago

PF Sorry mate , Peter Foster is a mate ( ex now) who murdered his wife in pommieland. No slur intended at all.

TRB
Guest
TRB
5 years 7 days ago

It’s ironic to think the greatest invention of mankind was invented in Germany first wide spread book printed was the bible!

PF modern Germany has many painful memories of hyperinflation and has a much stronger moral compass today, they are older and wiser so do not expect the printing presses to start in Germany.

Blind freddy can see German taxpayers (voters) are stopping the printing of money (Euro bonds) in Europe.

M&M
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M&M
5 years 7 days ago

TRB – morally Germany owes their club med cousins.

Germany has benefited from a low euro.

“Occupy Germany”.

They’ll print. Otherwise who will Germany sell to when everyone goes into their shell.

MG
Guest
MG
5 years 7 days ago

PF @ 1 – Do you really think the RBA will stand idle while the rest of the world prints away?? Do you think they would allow AUD/USD 1.50 or AUD/EURO 1.10?? Not a chance in hell… They too would print, print, print.

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