Gold is the thing to buy and not sell with euro-geddon upon us

Posted on 18 December 2011 with 2 comments from readers

Precious metals investors are counting their losses this weekend but should remember that we saw the same kind of sell-off and then recovery in 2008. If you have no stomach for such volatilty you should get out of this asset class.

And into what exactly? It would appear hedge fund managers have been taking profits and cutting their year-end positions in precious metals. That would seem to be the main reason for the gold and silver price fall.

Looming bankruptcies?

Perhaps there are other firms about to go the way of MF Global. We would rather expect it. There are going to be a great many business failures in the financial sector as euro-geddon unfolds.

This is the point in the financial crisis that started way back in 2007 when it is impossible for everybody to get into the lifeboats. Saving everybody with mega-bailouts was always a massive mistake but there we are, it was done.

However, if you are an investor you do have to own something. Even a dollar bill is an investment class. And how many of those do you want to be holding as fiat currencies implode? You are also not going to be able to time your jumping ship so carefully.

When the Titanic went down you needed to be in the first wave of lifeboats, not hanging on to the back of the ship to avoid the downwave when it sank! Those who hesitated and waited often ended up dead.

The situation in financial markets is actually now that melodramatic. It is just that the European Union has a long tradition of boring people into submission and it is so easy to begin to feel that this will just never happen.

Deck of the Titanic

All that is happening in the gold market is that hedge funds are repositioning their chairs on the deck of the Titanic. But if they are selling out of gold and silver then they are giving up places in the lifeboats for an IOU.

The euro-geddon financial crisis will pull global stock markets deep under water, smash bond markets and pummel real estate. What you want to own to survive this crisis – and then to be able to buy the real bargains – is gold and silver, the only money without counterparty risk.

So as ArabianMoney has always argued don’t hold more gold and silver than you can handle in a volatile period but do realize that precious metals are the ultimate insurance against disaster and it is about to happen.

The dedicated chartists and market-timers will get wiped out, not the holders of gold and silver.

Don’t forget that for 2011 even after the bullion sell-off gold prices are up 12 per cent compared with a 12 per cent fall for global stocks and less than 10 per cent gain for US treasuries. If that’s a losing position then give me more of it!