Why you should buy gold?
by Vincent DENIS
But yes, why should I buy gold?
It brings no yield, no dividend. "Gold is a barbarous relic", often heard in the mouths of detractors
of yellow metal who like, knowingly or not, quote John Maynard Keynes.
In reality, the exact quote is: "In truth, the gold standard is already a barbarous relic" in A
Tract on Monetary Reform (1923).
We will translate it as follows: "In truth, the gold standard is already a barbaric relic. "What is very different." Keynes speaks of the gold standard, not gold in itself. You can position yourself on gold without believing or even wanting a return to the gold standard. It is simply a healthy and wise approach.
The farther back you can look, the farther forward you are likely to see - Winston Churchill
When I talk about investing in the metal, it means physical gold. Ingots and / or coins you hold in your own name. There are other ways to "invest" in gold, but we focus here on the physical metal because it must be the basis of your portfolio, its foundations.
Here are 10 reasons why you must have physical gold:
1. Gold is rare.
Gold has been mined for thousands of years, it is not "consumed" as a raw material and it is unalterable. We can only estimate the total amount of gold in the world.
According to World Gold Council, it is estimated that approximately 187,200 tons of gold were mined in history (of which 2/3 after 1950). All the gold in the world would therefore represent only a 21-meter cube. Since 1946, the global stock of gold is growing at an average rate of 1.8% per year and there is still some 57 000 tons of gold in the soil.
The WGC benefits of a good reputation with investors, so these figures are accepted, but they are only estimates.
2. Gold has a very long history
In old civilizations (Indus, Sumer, Egypt in 3000-2000 BC), gold did not only retained its sacred quality, but it had also become the emblem of wealth and social rank.
Homer (1000 BC), in the Iliad and Odyssey, or the epic poems of ancient Greece, mention gold repeatedly as a sign of wealth among mortals, and as a emblem of splendor among the gods.
Gold as money is an invention of the Greeks of Minor Asia , in the 6th century BC. .
Cresid is the currency of Croesus, King of Lydia (561-546 BC). He is quoted by Herodotus,
Plutarch, Pollux. The Darica was the royal gold coin of the Achaemenid Persians, created by the king
Darius I.
The role of gold becomes major in international trade: it is the metal that inspires the most trust.
3. Gold is a safe haven in times of uncertainty
You do not need to be a great clerk to understand that we are living in a period of increasing geopolitic risks. The tension is growing. North Korea, Near East, Russia ... Risks of civil wars, terrorism ... We are spoiled for choice. No major problem has been solved, we only do hide the dust under the rug but the next financial crisis is fast approaching. In this context, it is wise to have gold in your wallet. The yellow metal is always well in times of uncertainty. If you think you can trust the governments to fix the problem, do not buy gold. Otherwise, it is better to have metal.
4. Gold is the best insurance
History sometimes knows periods when the preservation of capital must be the main objective ofan investment strategy.
The financial system is very fragile, drowning under a mountain of irrecoverable debt. All signals are in the red, the point of no return has passed since a long time.
The Sapin II Law worries the life insurance holders, the war against cash is declared. Rates Interest rates are historically low, even negative if inflation is taken into account. We swim in a universe of bubbles (real estate, stocks, bonds ...). Reuters recently announced us
the EU plan to freeze bank accounts and avoid a “bank run”.
The long-term attractiveness of gold has not aged to protect its purchasing power. Gold is an real asset that will not fall to zero. It remains the best insurance in times of crisis. But do not forget that we take out a fire insurance before the house is reduced to ashes.
5. Diversification
Buying gold is investing in insurance. It's a simple tool to smooth the risk and reduce losses in the event of a sharp drop in equity, bond or real estate markets. The base of a healthy diversification is to own physical metal as the foundation of the portfolio.
From there, you can hunt yield based on your investor profile.
6. Inflation / Deflation and Hyperinflation
We define inflation as an increase in the money supply. Rising prices is a consequence of this currency creation, because a larger amount of money to buy a stable amount of goods and services. So the value of this currency is going down. Gold can not be devalued by inflation, unlike fiduciary currencies.
Deflation is a contraction of the money supply that drives up the value of the currency and a decrease in prices. This is the fear of central banks, because it weighs down the weight debt more difficult to repay.
Central banks have significantly increased the money supply through their quantitative easing policies (Quantitative Easing – QE)
And if you lose confidence in an unlimited printable currency, it is hyperinflation. The phenomenon is psychological and very fast. Nobody wants to have worthless paper, the velocity increases and banks lose control. For example: Weimar Republic (1992-1923), Argentina (1989-1990), Zimbabwe (2007-2008).
In all three cases (inflation, deflation, hyperinflation), it is wise to have physical gold.
7. Gold is undervalued
Adjusted for inflation, gold has not yet reached its peak of 1980. And considering all the energy
accumulated by a massive creation of currencies unprecedented in history, the pendulum will have to
return to balance with more force.
It can be said: gold is an undervalued asset. And better buy what is not expensive. In April 2016, Deutsche Bank acknowledged that it manipulated gold prices. Gold can not go up because it is the barometer of the state of the system. We must maintain confidence. We live in permed illusion .
The good thing is that it allows you to buy it cheaper. So, do your shopping while it is still time. And then look at the 100-year Gold / Dow Jones ratio chart. It is perfectly eloquent.
8. No counterparty risk
Counterparty risk is the risk of default of one party to a contract. If you keep your money in the bank, the latter is your counterpart. If you have euros in your pocket or under your mattress, your consideration is nothing less than the government. Better well evaluate the risk that this represents.
One way to avoid counterparty risk is to favor real assets over financial assets.
Gold is a real asset. Owning yellow metal outside the banking system can be part of a strategy to rid off your bank.
9. The attitude of central banks
The European Central Bank (ECB) and other European central banks are signatories of Central Bank Gold Agreements in which they intend not to sell significant amounts of gold.
In 2013, the German Bundesbank reported that it was planning to repatriate its stored gold into the Reserve
Federal Republic and the Banque de France. According to her statements, she does not intend to sell its metal, but to prepare for a possible currency crisis in Europe. Germany is not the only one, other countries have started the same steps.
Central banks in emerging countries are important buyers of gold, especially since 2008. Between 2000 and 2017, Russia officially went from 343 tons to 1715 tons of gold. For the same period, China went from 395 tons to 1843 tons. These are "official" figures.
It is possible that these countries hold more gold. Gold reserves are a delicate subject prefer to keep silent. But if these countries fill their safe with gold, there must be a good reason. In the United States, it is difficult to know for sure the amount of gold stored at the Fed, Fort Knox and West Point. These are advanced figures with no real evidence. We have to accept them and content.
10. Reset the system - the end of the dollar as a reserve currency
If Russia, China and others buy gold in large quantities, it is mainly to reduce their dollar reserves. The US currency has lost 98% of its value in a century.
All these central banks are preparing for the big reset of the financial and monetary system where the dollar will no longer be the world's reserve currency. They want a place at the poker table and gold,these are the tokens. Better to own as much as possible. We realize that they accommodate themselves very well a price of gold kept artificially low thanks to the paper gold. This allows them to increase their reserves cheaply.
The average life of a fiat currency is 27 years. For an empire, it's 250 years old. The dollar lives its last moments. Pax Americana has entered its ultimate stage. The empire is become decadent. We must act now to protect ourselves. Better to have a year in advance than 10 minutes late.
Conclusion
Remember that all the fiduciary currencies in history ended up failing. Gold is the ultimate currency. It is the best tool to preserve your heritage.
In 2015, the yellow metal accounted for 0.58% of global financial assets compared to 5% in 1980, when from the peak of the previous bull market. It's 8.6 times less. What will happen, in your opinion, when this percentage will go up because the mass will have understood the risks and will take action? It isif you can not get gold, it will be too late.
Everything is cycle. From the infinitely large to the infinitely small, the universe operates in cycles. Identify them and follow the trend. Gold is a fundamental part of your portfolio no matter what.
It is a liquid and discreet asset, with a medium / long term perspective. We do not buy it for make short-term profits.
It's not about being pessimistic, but realistic. Know how to distinguish a fact from an opinion. In
History, gold has always taken back its rights on fiduciary currencies. Always!
"Paper money always returns to its intrinsic value - zero." Voltaire
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Sources:
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