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.


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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 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.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 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.

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19 Responses to “Gold – Your Wealth Insurance Policy”

  1. TRB

    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.

  2. DM

    “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.

  3. Drood

    Spend it , before someone else does.

  4. M&M

    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.

  5. Peter Fraser

    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.

  6. TRB

    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!

  7. Drood

    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.

  8. rocco

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

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