I Own Gold Because…
You can hear many arguments why you should or shouldn’t own gold, but I think I recently read the most important and succinct argument for owning gold. In a recent article on ZeroHedge, Dylan Grice’s views on when to sell gold are laid out for everyone. The following statement is beautiful:
The reason I own gold is because I’m worried about the long-term solvency of developed market governments
And there you have it. That is good enough for me. Most of you are probably saying to yourselves right now, “what the heck is he talking about” or “that quote sucks” — well then you don’t understand the implications of the solvency risk with the U.S., western Europe governments… throw in Japan too.
With the economy falling off a cliff a few years ago, the only support has been governments. Imagine a person holding a heavy, giant ball above their heads. It’s heavy and very tough to keep above his head. Then, imagine someone coming along any whacking him in the knee (Nancy Kerrigan style). He would probably fail to hold the ball up after getting whacked in the knee.
This is similar to the governments propping up the global economy. Insolvency is like getting whacked in the knee while holding up the economy.
You’ve probably heard of the Greece situation by now. Earlier this week, Portugal had its credit rating cut as well. These are continued indiciations of the solvency risk for developed countries. You may have seen the acronym PIIGS. It refers to Portugal, Italy, Ireland, Greece, Spain — the countries many believe to be at risk of financial collapse. How many of these would it take to pull down the entire European Union? Meanwhile, the UK is struggling.
Again, I’m owning gold because I am skeptical of the ability for governments to continue to print money to prop up economies all over the world. Something has to give at some point, and it’s likely to be ugly. Gold is about as secure as it gets in such a scenario.
To effectively sell gold bullion or bars, one must first understand the ins and outs of this sometimes volatile business.