Why Gold Is a Stupid Investment for Those Seeking Safety in Times of Turmoil
11 Safe Haven Assets More Valuable Than Gold
It sure is a great time to own gold!
A coming economic implosion as a result of ill-conceived trade wars, rising debt obligations, and the threat of yet another war in the Middle East.
It’s the perfect recipe for a gold bull market.
Certainly I own gold. I’d be a fool not to.
But make no mistake; the justification for owning gold in times of conflict is, for lack of a better word, stupid.
We’re always told that gold is a solid investment in times of trouble because it’s a reliable asset with a long history of value. But how valuable is gold, really?
11 Safe Haven Assets More Valuable Than Gold
Years ago, I used to speak at some of the events put on by MoneyShow, a financial media company that hosts conferences throughout the year for investors.
While they do have some decent speakers, for the most part, I never saw these events as much more than a way to lure unsophisticated investors into rooms where pump and dumpers, fear mongers, and gold coin hustlers can make some decent scratch.
The gold coin vendors were especially shady, with a good portion of them telling tales of how the only thing you’ll be able to use as currency when the world comes to an abrupt halt is gold coins. And they really push the coins, too, warning that you can’t buy and sell things with gold bars. "It’s just not rational," they’d say. How ironic.
Let’s just say, for a moment, that the world really did get flipped upside down.
World War III breaks out.
Cyber attacks on our nation’s infrastructure cripple us.
Electrical grids go down, gas pumps stop working, nuclear power plant vulnerabilities are exposed, grocery store shelves are decimated, and medicine and clean water become scarce.
The worst of all possible situations smacks us in the face with all the subtlety of Kim Kardashian’s naked ass on Instagram, but you’ve got gold coins, so you’re safe... right?
Or, better yet, the world goes to hell, but because gold is a “safe haven” asset, you’ve got nothing to fear — as long as the world continues to view it that way.
Analyst Brett Arends opined on this a few years ago and made some very interesting observations, including the following:
Gold was demonetized in 1973, when the United States government formally abandoned the gold standard. (Though Switzerland retained a version of a gold standard until 2000.) So any arguments for gold as a “safe haven” that depend on data from before 1973 are based on a flawed premise.
Gold lost 23% of its value during the 1980s, even in nominal terms, before counting inflation.
Gold lost 29% of its value during the 1990s, also before inflation.
The further the gold standard recedes into history, the less power it has for those still investing. Investors who began their careers under the U.S. gold standard are in their 60s now — or older.
Gold has “worked” less and less as crisis insurance as time has gone on. It wasn’t that great to begin with, either. In the stock market crash of 1987, it rose all of 5%. In the financial crisis of 1998, it rose 2% — after first falling. And in the financial crisis of 2008, it failed completely as any kind of safe haven, falling as much as 30% as desperate investors dumped everything, including bullion, to raise cash.
Gold’s long early history as “currency,” dating back thousands of years, is certainly interesting, but it’s irrelevant financially. It predates the rise of modern nation states, laws, banks, and communications. The conditions that drove merchants to buy and sell with gold back then no longer exist.
The main appeal of a “safe haven” is that it doesn’t depend on anyone else. But the main drivers of the gold price seem to be retail demand, both through exchange-traded funds and in emerging markets. And that, too, means it is more likely to be volatile than “safe.”
Of course, this isn’t to say you can’t do well with gold.
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I know plenty of folks who’ve made a lot of money by trading gold stocks and ETFs; I’m one of them. Because while I don’t buy the argument that gold is a “safe haven,” I do know a lot of people still believe it is. And that presents an excellent trading opportunity.
Still, if the world really does go to hell, gold isn’t going to help you.
Now, I’m not saying it’s the end of times. But if you really think gold is going to protect you from some kind of coming global meltdown, here are a few things that will be far more valuable to you than gold:
- Solar panels
- Back-up battery storage
- Land with healthy soil
- Firearms and plenty of ammunition for hunting and protection
- A general knowledge of farming and food production
- Access to clean water
- Video surveillance
- Transportation that doesn’t rely on petroleum. Might I suggest an electric car that you can power from the electrons generated by your solar panels?
- Medical and first aid equipment
I’d also recommend condoms, as the last thing you want to do in an apocalyptic wasteland is procreate.
Bottom line: You can always create wealth with gold, but don’t believe anyone who tells you that it will provide any form of protection if the proverbial poop really hits the fan — because it won’t.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.
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