• 343 days Will The ECB Continue To Hike Rates?
  • 343 days Forbes: Aramco Remains Largest Company In The Middle East
  • 345 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 745 days Could Crypto Overtake Traditional Investment?
  • 750 days Americans Still Quitting Jobs At Record Pace
  • 752 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 755 days Is The Dollar Too Strong?
  • 755 days Big Tech Disappoints Investors on Earnings Calls
  • 756 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 758 days China Is Quietly Trying To Distance Itself From Russia
  • 758 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 762 days Crypto Investors Won Big In 2021
  • 762 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 763 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 765 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 766 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 769 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 770 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 770 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 772 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Gold In 'Not Safe Haven' Shocker

If your house catches fire, do you call your insurer before trying to escape the flames...?

So Gold is not a "safe haven" - that's the genius insight many pundits are pushing today.

No one watching gold's ups and downs over the last decade's five-fold gains would claim otherwise. But fair's fair. The price has slumped 11% this month, even as stock-markets and the economic data tanked, making Sept. 2011 the worst month since the wipe-out of Oct. 2008 after Lehman Brothers collapsed.

How come? Wasn't a banking crisis, plus the threat of a government default, supposed to be good for gold? Well, just like 3 years ago, the problem with a banking crisis - and the accompanying stock market crash - is that it forces money to flee the futures market. There, speculative traders can bid up (or push down) the price of gold in the future, using borrowed money.

So just as Lehmans' collapse meant there was no money to be borrowed (a major investment bank vanished, you'll recall), so this latest credit crunch has destroyed gold-futures demand. That of course impacts the price of gold for today. But it has only seen demand for physical gold surge yet again. And why is that growing handful of people choosing to buy physical gold? Because it's long-term insurance, not a short-term safe haven.

September's drop has certainly hurt August's buyers. But you wouldn't expect your insurer to pay out the moment your house catches fire. To flee the flames you'd take the fire escape, not call StateFarm. And just like good insurance, gold's defensive value pays out over time, not day-to-day. Provided you remember to pay your premiums in good time.

3rd Quarter 2011 Comparison

Sources: LBMA, DMO, WSJ, Yahoo, LME, EIA, BoE

Yes, gold got whacked in September 2011. But across the whole summer's mayhem, it beat every other asset class hands down. The only other winner was government debt - that classic knee-jerk safe haven, now yielding less than inflation for three years running and uniquely exposed to the only policy options left open for fixing the debt crisis: default or devaluation.

This latest phase of the crisis, however, guarantees volatility in all markets, and anyone considering gold today must understand that it's physically secure but financially exposed to very sharp price swings. This is not news. For UK gold owners, for instance, September's fall was only the worst drop since January, and it has dropped 5% or more in eleven of the last 120 months since this bull market began. This latest "wipe-out" is par for the course, so far.

No one can (or should) promise new buyers that gold will now repeat its 120% gains of the last 3 years. But the long-term case for owning gold only looks stronger the worse this crisis becomes.

And if you're tempted by government debt in the meantime, just remember to get off the fire escape steps before they also catch fire.

 

Back to homepage

Leave a comment

Leave a comment