Investing in Anything
Investing is a bit of a crap shoot at any time, because our fate is never determined by ourselves. The issue is always what “risk” there is.
Risk is always the determining factor. When you invest in something, the final determination of whether to make that investment, is the amount of risk involved.
Gold at this time, has more risk attached, that at any time in the recent past.
If you believe that the world is rolling into a currency crisis, or if you believe that the amount of debt in the Western economies is so high as to be unsustainable, and if you believe that gold is the only safe haven, then you are considering gold at this time.
Some Factors That are Increasing or Decreasing the Amount of Risk Involved
Before we go over these factors, let me remind the reader, that gold as a safe haven, is actually a different safe haven than the simple term implies.
Firstly, the price of gold tends to fall when the market falls. It is not the instant counter-balance to the stock index that the pundits advise.
Secondly, the price of gold is deeply affected by yield and by the cost of holding gold. Gold obviously has zero yield, other than the changes in the price of gold. As stability rears its head, people look to yield. Yield is the bottom line on why people invest. Instability and fear make people abandon yield and move to ‘safety’. Yield is about as low as it can go right now, so the true cast of holding gold is at a historical low. That makes gold attractive, on a historical basis.
Will Gold Rise in Value in the Next Few Weeks?
People are looking to gold because of currency instability and the threat of default by sovereign countries on their debt.
The Domino Effect
Remember the Viet Nam war fought by the US military? One of the key supporting arguments, was the “Domino Effect”. It was felt that if Viet Nam fell to the Communists, so too would their neighbors fall to the Communists. It turned out to be an argument of nonsense, perhaps supported by the ease in which Russia, decades before, took over country after country in Eastern Europe. There was no Domino Effect after the war in Viet Nam was lost.
There will likely not be a Domino Effect following any Greek default, whether a partial default – which is most likely – or a crash of the Greek economy.
The Strength of the European Union
What people are forgetting, is just how strong the European Union is. May I remind the reader, that this entire discussion in the financial press revolves around whether the stronger European members will come to the rescue.
What everyone seems to be forgetting, is the stronger members have the economic power to save the situation. The only question is, ‘will they use that power in this situation’. Looking at the matter in this light, makes it much less onerous.
The Current Belief that Greece Will Default
The current belief that Greece will default, and so too will other indebted countries, is equally faulty.
Looking back over modern history, shows that countries have previously defaulted and the effect was specifically on those that loaned money, and the world did not self-destruct. If one reads history, as far back as the 1930’s, the greatest fear in the USA and their overriding diplomatic concern, was that Germany still owed bond debt to the USA, and seemed not to be intending to honor that debt.
I point out that Germany, in spite of owing enormous debt in 1933 to the USA, in a few short years afterwards, was able to have the economic stability to threaten the entire world and indeed caused the death of millions. So much for the inalienable ‘truths’ circulating today that current economic malaise and debt in Greece, threatens everything.
Next: – Whether now is the time to buy, European instability, a larger prospective, and the risk of gold investing at this time.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
