Place of gold in a perilous world
By GCRU Gold News on Thursday, June 19 2014, 09:04 - Permalink
The world is a dangerous place. One only has to look at the rise in extremism, rogue regimes, overthrown governments attempting to regain power, ethnic and religious factions fanatically opposed to one another, and other violent conflicts to see this. Indeed one could say that the populace of Western democracies are perhaps more in peril now than at the peak of the Cold War when the threat of mutually assured nuclear destruction kept most serious conflicts from ever starting.
Small wonder therefore that gold buying is making something of a comeback in many parts of the world. The Middle East, for example, is seeing major gold purchasing while in the perhaps more politically stable, but traditional gold buying areas like India, where gold has stood the test of time in terms of an inflation hedge, demand remains strong despite the government’s attempts to rein it in to protect the nation’s balance of payments. So too across virtually all of Southeast Asia, some areas of which have a recent history of conflict, but virtually all of which have seen periods of out of control inflation. Even China – now the biggest gold buying nation of all - has seen citizens flooding to protect their wealth largely through inflation fears, but also for historical reasons.
But it is the U.S. which seems currently to control the gold price, perhaps through the machinations of the major bullion banks who can make vast profits through manipulating the price up and down by utilising the futures markets, and these historic reasons for owning gold are not really present. Conflict is unlikely, bar some horrendous terrorist atrocity, which cannot be ruled out given the fanatical nature of some of the anti-U.S. political groups elsewhere in the world. Meantime inflation has been kept under reasonable control for many years. The Wall Street crash of 1929 is mostly outside living memory, but a repeat cannot be dismissed and some savvy investors will be holding gold just in case. A terrorist attack on the scale of 9/11 could well bring markets crashing down. It may be as well at least to hold some proportion of one’s wealth in gold as insurance.
In Europe, the rise of far right and far left leaning political parties is a cause for concern in terms of political stability, while Ukraine is close geographically to the continent’s centre. Russia under Putin seems to be seeking to regain some of its past powers and no-one knows how this may pan out. It will leave those in some of the former Soviet controlled Eastern European nations worried that the Bear may be flexing its claws in order to regain its influence – perhaps as much by destabilisation as by actual conflict.
The global banking system too remains stretched and bank collapses could leave people heavily exposed – just ask Greek Cypriots!
It is indeed an uncertain and perilous world we live in and holding gold as a wealth protector seems as important now as it ever has been – not necessarily for making huge gains as a result of a rising price, but as a protector against heavy losses should banks collapse and markets crash. It is a prudent policy to hedge one’s bets.