Friday, December 4, 2009

Gold: The Ultimate Hedge Against The Unthinkable

At no other time in history, as far as I can recall, have more people been at risk for so many things.  Among the risks are loss of valuables resulting from crime, loss of one's job, loss of one's house, loss of one's investments and, as a result, loss of one's mind!

Let's face it, things are downright scary and threaten to get much, much worse.  I've already written about what I believe will be another banking crisis, Californias's severe problems, the increasing possibility of hyper-inflation and the inevitability of a currency crisis.  How on Earth could a person handle all that?

The answer, of course, depends on which risks one is subject to and to what extent.  It also depends on one's financial wherewithal, which, in many people's cases, is nil.  However, virtually everyone, no matter how rich, is subject to a sudden currency crisis and the accompanying hyper-inflation.  There have been many episodes of hyper-inflation in places such as Germany, Argentina, Zimbabwe, Mexico, Poland, Japan, the Soviet Union and many, many others.

Even people who are currently comfortably rich are far from safe.  In Zimbabwe, the most recent and severe case of hyper-inflation I'm aware of, a person who had a fortune of 1BILLION Zimbabwe dollars in 2003 and had chosen to hide it "under the mattress", would today be worth the equivalent of LESS THAN ONE CENT!!

As to the risk of losing one's job, one approach which I have advocated to friends for years, is to take an off-setting financial position in a very similar company to the one employing them.  Here's an example: let's say you work for Wells Fargo and fear losing your job for economic reasons.  The wise thing to do would be to buy some amount in a security that gains, if indeed financial conditions do deteriorate.  In so doing, the "loss" suffered by the termination of your employment would be, at least, partially offset by the GAIN in the financial position.  Such securities are common and they are easy to trade.  In fact, they are stocks known as ETFs, or Exchange Traded Funds.

As you have obviously inferred from the article's title, investing in Gold or high quality precious metal stocks, is, in my opinion, the BEST form of protection.  Gold has historically been a TERRIFIC  hyper-inflation hedge. It also tends to rise as other crises unfold, such as an outbreak of war.  To be fair, it's far from bullett-proof, as there have been periods of creeping inflation where Gold has fallen, such as in the 1990's.  But, I'm referring to the EXTREME types of risks we are simultaneously subject to today.

I believe that the sharp parabolic rise in Gold recently is YELLING that some very serious form of inflation and depreciation in the Dollar is very near.  Thus, if you can afford it, I would advise at least some exposure to Gold.  If you are short on funds, then use Silver, which as discussed previously, is even historically cheaper than the "yellow metal" and sells for 1/60th per ounce.  In fact, Silver is in critically short supply and the U.S. Mint has entirely stopped producing one ounce Silver Eagles.  I recently read that they are currently trading at a 30% premium on EBAY to their intrinsic value, based on their metallic content.

I hope you've found this article thought provoking and informative. Comments, pro or con, are always appreciated.

Marko's Take


  1. I'm lamenting the amount of gold I sold earlier in the Summer. How high do you think it will go?

  2. I wrote a piece on how high a couple of days ago and my reasons for why. B, if you're too busy to get around to it, feel free to call, but the article is quite thorough and I highest recommend that you understand the reasoning...BTW, thanks for everything you've done!



    I thought you might want to read this article. It substantiates my confusion as to the value of gold and why, as a species, we are enamored by this lump of "yellow metal". Are we still such barbarians that the glittery ore convinces us STILL that it has a monetary value, or any value at all???? I mean, seriously, you can't eat it. You can't use it to further your life or health: ie, food. OK. So, then fine. It sparkles. It's soft and malleable. It doesn't taint. It's conductive. It makes nice jewelry. SO WHAT??? Why do we, as a world, insist this stuff has any value?

    Far be it from me to not jump on the bandwagon and profit from this belief system, but it just seems ludicrous that, in this day and age, we can still be gold crazy. It's like believing that taking communion on Sunday is like actually consuming the body and blood of Christ!! C'mon, now. How neanderthal is that really??

    As I've said to you before, the gold conundrum is, and probably always will be, curious to me. But, in reality, even to this day, the smartest minds, the smartest politicians, the smartest leaders of countries and nations, are like wide-eyed children when it comes to something that is no more that a soft rock!!!!!

    Hey, I was just having a brain fart. Thought I'd share it with you.


  4. Peter:

    First of all,I agree with you completely! Gold and Silver are mentioned repeatedly in THE BIBLE! As you know,the BIBLE is the most often read book in the WORLD. So regardless of the logic, which I find interesting, it must be a by product of its historical importance.


Take me on!