Wednesday, May 27, 2015

Gold Maybe A ‘Barbarous Relic’ But These Are ‘Barbarous Times...........

Gold Maybe A 'Barbarous Relic' But These Are 'Barbarous Times

At around $1,200 per ounce as of May 22, gold has remained relatively steady over the last year and a half. Buying in physical gold markets has helped prevent further slides.

Without rising asset prices, stocks and real-estate fail to protect purchasing power for savers. Bond yields are hovering around the inflation rate. This leaves gold as an alternative destination for savings.

Gold generates no yield. When yields overall are looking negative in real terms, the absence of yield is no longer a deterrent.

Besides the risk of falling asset prices, corruption runs rampant and the business environment is extremely challenging. You're constantly under threat from fraud and extortion by authorities. This creates an additional need for keeping wealth out of harm's way.

Investors buy gold because they're willing to accept the absence of yields in order to preserve their wealth.

Some call gold a 'barbarous relic,' after famed economist John Maynard Keynes used this term to describe the gold standard in the first half of the 20th century.

They're right. Gold is a barbarous relic, but these are also 'barbarous times.'

When risks outstrip potential returns, you're more likely to lose money in investing than make moneyYou're willing to forgo returns, or even suffer losses, in order to preserve your wealth.

We're beginning to see this behavior in the West. In the last year, we've seen negative interest rates in Europe, despite a weakening euro.

As economic growth stagnates, asset price appreciation should also falter. The general investing population may realize that there is no growth, and that once the transitory phase of asset appreciation is over, real positive returns are likely to become scarce.

If investors discover that they are unlikely to earn positive returns on investments in stocks, bonds, or real-estate, the alternative of owning gold will become more attractive.

In a non-growth world, you can't expect to make money on investments, so you need to look for ways of getting your wealth out of harm's way.

As we're seeing gold can shine in these 'barbarous' times.

No comments:

Post a Comment