Nov 15 2011
The General Public, The Eurozone, and Gold!
An article found on the GoldCore website has, in my view, content worth thinking about. Titled ‘Eurozone Failure Could Send Shockwaves Around World Akin to Soviet Union’ – reading time 4 minutes – the article says:
- While the price of physical gold currently is exhibiting weakness based on volatility and weakness in global stock markets, that is likely to be temporary amid growing fears over Italy’s economic stability and the Eurozone generally – both of which will support ‘safe haven gold’.
My comments: while I generally agree with this statement, I wouldn’t describe the price of physical gold, while somewhat volatile, as being particularly weak over the past few trading days. I also think that there are many economic factors beyond the Eurozone issues, not the least of which is the economic quicksand I consider America to be wallowing in, that currently lends credence to physical gold as a ‘safe haven’. Finally, and once again, for me physical gold is not about day/day price in any event, it is about protecting purchasing power over time;
- “failure of the Eurozone and European monetary union looks increasingly likely”.
My comments: People who are desperate do desperate things. Sometimes those things work, sometimes they don’t. So far, what I believe has happened after mid-2008 in America and Europe is implementation of a series of economic strategies that largely have been aimed at ‘righting the economic ships’ by using what conventional economic theories suggest ought to work. Unfortunately, as I see things, all that has resulted from these strategies is postponement of an end result. There are lots of economic issues outside the Eurozone and European Union that are not discussed in the referenced article that I believe will contribute in the end to a second – and I think perhaps larger – economic crisis at some point. These include, but aren’t limited to:
- America’s economic issues,
- what I suspect are in many cases seriously over-leveraged large bank balance sheets,
- consequences that I don’t claim to understand – or understand the possible consequences of – the derivatives markets and defaults in those markets if they occur, and
- what intuitively seems to me to be an ‘economic house of cards’ that gets built higher and higher by political actions and by actions of financial institutions, particularly in those financial arenas that are unregulated or poorly regulated;
- the majority (of the public) knows these European based economic developments are negative, but has no idea of the ramifications of them. The public at large are ‘like deer in the headlights failing to join the dots” and don’t “realize the ramifications for their investments, savings and financial wellbeing”.
My comments: I am as sure as I can be that is a correct summary of how Main Streeters likely see things. The public at large is bombarded with news every day. Many Main Streeters are experiencing tough personal economic times, and I suspect feel helpless to do anything about it – hence things such as the Wall Street Protests, and more militant protests such as those experienced this year in Egypt, Libya, etc.;
- importantly, I think most people who work in, and are active in the management of their own investment accounts, the financial markets, while perhaps not ‘deer in the headlights’ in the same context are ‘deer’ nevertheless. I see most of those more ‘sophisticated’ people – and I include myself in this – as ‘deer’ who see the headlights, know they are headlights, know that if they don’t move they will be maimed or killed, but desperately hope the driver of the transport truck bearing down on them will be able to apply their brakes or swerve to avoid hitting them. All the while I think most of those ‘more sophisticated people’ likewise harbour a feeling of ‘hopelessness’ in the context of being able to do anything about what is going to happen – much like an experienced parachutist who has jumped out of an airplane, whose chute deploys, but then at about 10,000 feet above the ground rips wide open;
- “the public is nowhere near the gold market”.
My comments: From what I read and from anecdotal evidence I have gathered, I agree with this. However, and I think importantly, from what I have been able to learn to date I think this comment can be extended to include most financial market participants; and,
- “given the significant counter party risk seen in the world, as graphically illustrated by MF Global, more (gold) buyers are choosing to take delivery or opting for personal allocated accounts with legal title to the bullion which is in their name”.
My comments: I don’t know if that is true of not. That said, I think taking physical delivery of at least part of one’s indirectly held physical gold is making more and more sense every day.
Three anecdotal stories:
- first, last week I sat down with an American friend of mine who manages money. He is a very financially successful entrepreneur who looks at things in a very analytic way. After selling interests in various operating businesses, several years ago he began managing money both for himself and others. His funds participate in both conventional equities and sophisticated financial instruments. He feels highly responsible to his clients, and along with his wife, takes them to bed every night. As a result of his intellect, energy, knowledge and conscientious nature as best I know he has many happy clients to this day. Based on my conversation with him I can tell you four things:
- he is worried about the same things I am,
- his current investment strategy is largely based on a belief that the financial markets will survive whatever is thrown at them,
- that the fiat currency system will survive whatever is thrown at it, (3) I sense he is not as sure of his positions on these things as he was six to twelve months ago, and continuously looks for both himself and his clients for ‘investment protection hedges’ in the current financial markets, and
- he neither believes in, nor holds himself or for his clients, any physical gold directly or indirectly. For what it is worth, my friend also does not believe the U.S. will ever again confiscate gold, nor does he believe there is particular physical or other risk in GLD and other Gold ETF’s;
- second, I continuously ask more conventional Investment Advisors I know whether they have recommended direct or indirect physical gold purchases to their clients. I have found that, to date, very few of them have, and very few think their clients have purchased physical gold directly or indirectly themselves or through other investment advisors; and
- third, that said, just yesterday an American investment advisor friend of mine told me that many of his clients did hold physical gold (I think most indirectly through ETF’s the way he described things to me), but with one exception none held more than 5% of their investments in directly or indirectly in physical gold.
I have believed for many years now that ownership of physical gold as a safe haven is important: Disclosure: I indirectly own and control ownership of physical gold. Accordingly, in what is acknowledged by virtually everyone I know to be difficult an worrisome economic times, I have great difficulty understanding why anyone with investable assets does not allocate some (if only a very small portion) of those assets to direct or indirect physical gold ownership. I suspect that the current escalated prices cause many such people (and their advisors) to stay away from physical gold – on the theory that the ‘ship left the dock some years ago’, to bad we didn’t climb on it then but we didn’t’. That said, see my earlier statement in this commentary that I repeat here: “for me physical gold is not about day/day price in any event, it is about protecting purchasing power over time”.
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