- Money Morning Australia

Gold – Your Wealth Insurance Policy


Written on 25 November 2011 by Greg Canavan

Gold – Your Wealth Insurance Policy

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.

 

Related Articles

Totally Standard Hyper-Inflation

Is There Any Upside for Gold Investors?

The Gold Bubble and China

What a 2,300 Year-Old Coin Reveals About Gold

Gold Investing Far From a Bubble

From the Archives…

The Onward March of the State
2011-11-11 – Kris Sayce

Lose a Shirt, But Gain a Wardrobe
2011-11-10 – Kris Sayce

Neither a Borrower Nor a Seller Be…
2011-11-09 – Kris Sayce

Roman or Zimbabwean
2011-11-08 – Kris Sayce

Lighting a Match to Inflation
2011-11-07 – Kris Sayce

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



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

Greg Canavan

Greg Canavan

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 author of Sound Money. Sound Investments (SMSI). An investment publication designed to help investors profit from companies and stocks that are undervalued on the market. If you're already a subscriber to these publications, or want to follow Greg's financial world view more closely, then we recommend you join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
Greg Canavan

Latest posts by Greg Canavan (see all)

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au


19 Comments For This Post

  1. Peter Fraser Says:

    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?

  2. KP Says:

    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

  3. Peter Fraser Says:

    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.

  4. Drood Says:

    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 teeny bit of research you,ll realize the same), it will affect you directly mr Foster sir.

    There is another way and that is to ditch the dollar ( and the euro ) as a global trade currency, however the rest of the west is too US jingoistic to realize Americas decline.

    http://knowledge.asb.unsw.edu.au/article.cfm?articleid=1398

  5. TRB Says:

    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 street and the tea party movement are all anti money printing.

    Do not underestimate the power of social mood and change.

  6. Peter Fraser Says:

    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?

  7. Drood Says:

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

  8. TRB Says:

    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.

  9. M&M Says:

    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.

  10. MG Says:

    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.

  11. TRB Says:

    M&M
    They may print however do not expect a easy free lunch.
    Many voters will vote out this German government if they print without harsh conditions on corrupt delusional weak countries.

    Money printing still comes at a cost something you gold bugs don’t understand!

    The cost is higher interest rates in the bond market cut backs on government spending and higher costs for commodity manufactures through inflation of a lower euro.
    Higher costs mean less profit and higher unemployment.

    Whatever way you look at it deflation is still on the table, however don’t listen to me line up and buy gold.

  12. DM Says:

    “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.”
    So where is this “secure storage”? A bank? A government depository? A hole in the back garden? There is no such thing as secure storage. If you buy gold and think that your wealth is protected because some organisation gives you a piece of paper guaranteeing it will be there when you want it, you are a fool.
    It doesn’t matter if it’s worth $5,000 or $500,000 an ounce – if someone steals it, you’ve got nothing. It’s not traceable, it is portable and it is easily exchanged. Other investments leave a trail of evidence if a fraud is committed – gold does not.
    Buy gold at your own peril.

  13. Drood Says:

    Spend it , before someone else does.

  14. M&M Says:

    TRB – agree mostly with what you say.

    Damned either way.

    The USofA hasn’t had all of those effects from printing. Bond yields aren’t through the roof and they’re still deficit spending.

    Perhaps they’re a special case.

  15. Peter Fraser Says:

    TRB – I only mentioned printing because I think they will have to, or break up the Eurozone. I don’t see them handling the stress any other way, but who knows just yet.

    Either way it will affect us.

    DM – someone can hold gold as part of their investments without taking extreme security measures. A simple safe bolted onto the floor would hold more than enough for most gold bugs here. You can buy that from bunnings for about $125

    Obviously large gold investors will need to do more. What did Celente do again, he’s a smart guy, use his strategies (said with tongue in cheek)

    But seriously a diverse portfolio that includes gold isn’t a bad idea, although exclusively gold may be risky.

  16. TRB Says:

    PF I agree they may have to print,however nobody has courage to say there will be harsh conditions by Germany if they try?

    What are those harsh conditions higher interest rates,government spending cuts,higher costs for commodities because of a weak currency thus manufactures profit margin drops to a loss and result high unemployment.

    My bomb shelter in White Cliffs NSW looks a pretty good investment Drood I have my mining hat on and the lights are all on with pretty opals!

  17. Drood Says:

    TRB is right , the German populatiom are against printing , and Angela has so far made no mention of it.
    The Bundesbank will print when a USE becomes closer to reality.

  18. bobby Says:

    Swan says print

    http://www.businessweek.com/news/2011-11-27/europe-must-act-to-prevent-debt-crisis-train-wreck-swan-says.html

  19. rocco Says:

    Buy gold..as gold will be gold for ever and always have value.



GET THIS NEW REPORT : 5 Things You Can Do To Boost Your Retirement Pot


In this report we’ll give you strategies, tips and advice to help you kick-start, or revive your retirement savings right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Diggers and Drillers

A 3-Point Plan to Re-Engage with the Aussie Mining Boom


This new video reveals a way for Aussie share investors like you to RE-ENGAGE with the next phase of the mining boom…while valuations are still dirt-cheap…


The plan centres round three specific stocks.


To find out what they are, click here.

Australian Small-Cap Investigator

The Australian wildcatter
exploring oil's 'final frontier'


The US Geological Survey says this area contains up to 71 billion barrels of oil.

Only a few explorers have secured licences to drill.

One of them is a daring little Aussie firm that begins drilling 'in early 2014'.

According to small-cap analysts Tim Dohrmann it's impossible to speculate just how high this one could go. Find out why here.

World War D

Couldn’t make it to our
‘War Summit’?


Don’t sweat it. Click here for the next best thing…


World War D was the most important meeting of minds of the decade so far. What came out of it will almost certainly force you to reshape your investment plan for the rest of the decade. There's no way to go back in time and get inside the Savoy Ballroom of the Grand Hyatt.

But you can do the next best thing…
to find out what it is, click here.

  • ^NDX3588.805+28.857 - +0.81%
  • ^FTSE6681.76+56.51 - +0.85%
  • ^AORD5487.800+20.700 - +0.38%
  • ^AXJO5500.900+21.600 - +0.39%
  • AUDUSD=X0.9373
  • USDJPY=X102.645

Graphic Ad 1 – Blue Chip Stocks Report


Revolutionary Tech Investor

This report is about TECH MOON-SHOTS


Four of them, to be precise.


It's an early-days project. But one biotech aiming for the cancer moon-shot is already up - get this - 497.14% since tipped.


For four more tech moon-shots, click here.

Gowdie Family Wealth

WARNING:
The worst mistake you can make when handing wealth on to your kids


This brand new investor briefing shows you what your family’s in for if you don’t take care to leave your wealth to them in exactly the right way.


And it shows you precisely how to prevent infighting, recklessness and misunderstanding over money.


Read it here.

The Money For Life Letter

Holden. Toyota. Qantas. BUST


Do you really expect the share market to boom in times like these? That's why Nick Hubble says the best thing you can do right now is invest for safety and income.


This brand new video shows you how you can get predictable, reliable and rock solid cash flow no matter what happens in the wider economy.


You could lock in up to $20,000 a year - and that's just the start. See how here.



Sound Money. Sound Investments. [bullish prediction]

Greg Canavan's first bullish prediction in four years


Greg Canavan
doesn't make forecasts like this often.


When he does, it's because he’s found something that could make you money for years to come.


Read more here.

Is the Australian Housing Boom Really Back?

The Denning Report

2014 Predicted


Dan Denning accurately forecast 2013's flight from
bonds to stocks, the commodities crash and the
Aussie dollar top…to the exact week


In this brand new forecast report, he shares his
three critical predictions for 2014…

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

If these lessons can be passed onto the next generation, what a world it would be. Healthier, genuin [Read More...]

3D printing is changing medicine, consumer products, art and manufacturing. The impact it’s having o [Read More...]

Done properly, a retirement business can not only help fill a retiree’s time and replace their work [Read More...]

Free speech is no longer really a right at all. Governments, vested interests, and lobby groups are [Read More...]

Australian house prices are going to remain high. Perhaps finally, when the last baby boomer retires [Read More...]

US corporations have more cash in the bank than at any time in history. US markets are simply not go [Read More...]

Then there’s the fact that the currency reacts to the economy, not just the other way around. Perhap [Read More...]

Coming off successes in Iraq and Afghanistan, it makes sense that the US should send troops to Ukrai [Read More...]

If China eventually allows full cross-border movement of capital, an estimated $1.5 trillion in savi [Read More...]

We’re tipping that you'll see a change of attitude about the US dollar as the world's rese [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery