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.
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.
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
November 25th, 2011 at 4:16 pm
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?
November 25th, 2011 at 4:31 pm
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
November 25th, 2011 at 4:39 pm
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.
November 25th, 2011 at 5:08 pm
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
November 25th, 2011 at 5:14 pm
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.
November 25th, 2011 at 6:08 pm
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?
November 25th, 2011 at 6:31 pm
PF Sorry mate , Peter Foster is a mate ( ex now) who murdered his wife in pommieland. No slur intended at all.
November 25th, 2011 at 6:40 pm
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.
November 25th, 2011 at 7:00 pm
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.
November 25th, 2011 at 7:10 pm
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.
November 25th, 2011 at 7:25 pm
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.
November 26th, 2011 at 12:05 am
“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.
November 26th, 2011 at 12:25 am
Spend it , before someone else does.
November 26th, 2011 at 12:32 am
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.
November 26th, 2011 at 7:53 am
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.
November 26th, 2011 at 9:01 am
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!
November 26th, 2011 at 10:31 am
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.
November 28th, 2011 at 10:54 am
Swan says print
http://www.businessweek.com/news/2011-11-27/europe-must-act-to-prevent-debt-crisis-train-wreck-swan-says.html
November 28th, 2011 at 2:26 pm
Buy gold..as gold will be gold for ever and always have value.