So... what kind of troubles are gold and silver good for? I'll just use gold for the rest of this article, else I'll have to type "and silver" too many times.
Is gold always useful in a crisis?
I'll be talking about paper gold, ie, gold certificates, ETF, gold stored in a vault managed by another company.
and physical gold, gold which you physically own and/or have easy access to, ie, gold under your mattress, in a safety deposit box where you don't have to make much arrangement to withdraw.
Let's look at some scenarios.
1) Hyperinflation or Country Currency Crisis (Except major powers)
This is the most likely scenario in our world. This has happened to many countries. Venezuela, Argentina.
After wars, South Korea, Japan, Germany had high levels of inflation.
During the Asian Financial Crisis many Asian countries had their currencies weaken by large margins. Thailand, Indonesia.
Ok, so these scenarios are highly likely in our lifetimes. The probability will see them again during the next 60 years is 100%. Might not be in your own country, but definitely will happen again somewhere on Earth.
So is gold useful in such situations. Depending on how you invest in gold.
For example, a gold ETF custodied by a reputable custodian listed in another country other than your own.
Physical gold would help preserve your global purchasing power as your country's currency becomes worthless.
HOWEVER... in such a situation, just holding strong currencies such as USD, EUR, JPY, CHF would also suffice. You could just buy a US S&P ETF and you'll likely be protected by most of the hyperinflation or currency crisis in your own country.
So in truth, this isn't a very big issue if you own a diversified global portfolio.
The thing about it is... we need to be prepared BEFORE the crisis. By the time the crisis hits, that's not the time to be buying diversified assets. That's too late.
2) Financial Collapse or Currency Crisis in Major Economies
Example if the US refuses to fulfill all of their debt obligations.
The whole world would go into disarray. Many transactions wouldn't be able to transact, millions of people would lose their fiat money.
Many banks would likely go bankrupt. Potentially, other countries may also go bankrupt. Since many countries hold large holdings of US treasuries.
Depending on how the situation pans out, maybe gold may end up as a de facto currency for trading as a medium of exchange.
Or maybe some other country could take up the mantle of having their currency be the main currency used by the world for trade.
In such a situation, I would think owning physical gold would be awesome.
Owning paper gold... may not be too good, cos it's usually settled in USD, so if that particular currency is going to be unstable, selling the gold and taking USD and trying to buy groceries wouldn't help much. It may be better to even hold Euros and try to buy groceries using Euros instead of USD... Assuming that you're living in the US.
In such a situation, I'd think physical gold would be best, cos I'll probably never know what impact this large scale currency crisis will have on other currencies and economies, so even if I hold Euros or Jap Yen, I may not retain most of my value.
Trade may still occur, society would probably still function, so gold may end up as a medium of exchange like in the old days.
This scenario is possible but highly unlikely.
Similarly, we'll need to own gold before any trouble happens.
3) Financial Crises. The Great Depression, the Great Recession.
During the Great Recession, gold prices jumped.
Whereas in the Great Depression, it's hard to talk about gold prices cos it was pegged to the US Dollar at that time.
I think going forward, gold would do well in such financial crises. When all asset classes drop, there's a good chance that gold and cash may be best things to hold, to wait for the buying opportunity.
4) War
Small wars or big wars?
Small wars would be things like what happened in Korea where only a region or country is involved. In such a case, physical gold would be highly valuable as a trading medium in the country of trouble.
However, a global diversified portfolio also be able to preserve wealth for such a situation.
For big wars like world wars...
Well... I suppose it depends on what country you live in. Most of the time, gold would be highly valuable as the government may be printing money to fund the war. This is why typically during and after big wars, there will be times of high inflation.
Owning gold during and after world wars would likely be a good back up strategy.
5) The World comes to an end scenario. Max Max, The Walking Dead, Nuclear war
Well... at first glance, one may think that gold would be most useful in such a situation.
HOWEVER, in this scenario, gold is absolutely useless.
In this scenario, gold is no longer a currency. It is just like any other commodity. In this case a hunk of metal.
Society has pretty much broken down, there may be light trade between people but unless you have something useful to someone else, they probably won't want to trade with you.
In a zombie apocalypse, no one is going to care about gold. If you think that you're going to buy my egg laying chicken for 500gms of gold, which is worth around US$24k in current gold prices... you'll be dreaming.
The 500gms of gold is just going to be deadweight. A chicken is survival.
In such a situation, if I owned a gun, would I sell the gun to someone else for 5kg worth of gold?
ABSOLUTELY NOT!
The gold is worthless.
Not to mention if I sell someone the gun, he's gonna use the gun back on me and take his gold back anyway.
Gold in such a end of the world scenario would be pretty much useless.
UNTIL... mankind regroups and builds society up again. Then currency will come back into play for trade and as a medium for exchange.. THEN... gold would likely be very valuable at this point in time.
But before that, staying alive is much more important than keeping a chunk of metal sitting around.
So for this situation, owning a gun would probably be the most important thing.
Next is survival knowledge and food and water resources.
Conclusion
As you can see, actually, the uses for gold is pretty much muted. It's not particularly a crisis hedge.
Many times, just a global diversified portfolio would be able to shield someone from most crises.
If it's a localized issue, then a global diversified portfolio would be good enough.
If it's a global issue, then probably it would be good to store/hoard some physical gold.
If it's an economic crisis, gold is probably good as a store of value.
If it's the end of the world. You'll need a gun. With a gun, you can get gold, food, water, and a lot of other necessities.
So it's like buying insurance. To understand what the insurance is for. Buying gold may be for diversification or as an "insurance" for certain crises... But gotta know what kind of problems this insurance can cover. Else buy "insurance" also for nothing.
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