PLACE OF GOLD IN A PERILOUS WORLD / MINEWEB

Place of gold in a perilous world

With numerous conflict flashpoints around the world and the possibility of market collapses there has never been a better time to hold some gold as insurance.

Author: Lawrence Williams

Posted: Wednesday , 18 Jun 2014

London (Mineweb) - The world is a dangerous place. One only has to look at the rise in extremism, rogue regimes, overthrown governments attempting to regain power, ethnic and religious factions fanatically opposed to one another, and other violent conflicts to see this. Indeed one could say that the populace of Western democracies are perhaps more in peril now than at the peak of the Cold War when the threat of mutually assured nuclear destruction kept most serious conflicts from ever starting.

Back then there would have been a state to target should conflict arise. Nowadays the threat tends to come from small disparate fanatical groups which have no easily identifiable physical power base and with leadership by individuals who may be located almost anywhere. But the weapons available to these groups and rogue states are often the most sophisticated money can buy, and the illegal arms trade can supply, and their awareness of the high tech means by which their leaders might be located makes them increasingly difficult to track down and sanction. Even if the leadership is destroyed in say a drone strike, it tends to be like the Hydra’s head – cut them off and more grow in its place and often these are more extreme than the originals. Should some of these more extreme groups gain access to nuclear and biological weapons we could be closer to at least partial Armageddon than at any time in global history.

The past week has seen worrying activity almost globally – with ISIS making huge unexpected incursions into the heart of Iraq, more terrorist activity claiming lives and hostages in Africa and the Ukraine insurgency continuing to escalate – and, as a result, the gold price has been picking up again as safe haven investment starts to return. But whether this is enough on its own to kickstart a really significant gold price rise remains to be seen. In particular the American populace as a whole will likely remain unconcerned about activities on the other side of the world, but it should be aware that Al Qaeda and the even more extreme ISIS could perhaps pose even more of a major threat to people on the American continent than Russia has in the past or could in the future. And in Europe, which is closer geographically to most of the really serious global flashpoints, people are beginning to feel more vulnerable.

Consider the successful ISIS move on Mosul, Iraq’s second largest city with a population of around 1.8 million. There some 500,000 are reported to have fled the city – mostly to Kurdish territory to the east, while many more have been killed by the insurgents. 

Those who fled have had to leave their houses and possessions behind, escaping with what they can carry with them. Those who own gold will at least have a portion of their wealth with them which may stand them in good stead in the months, perhaps years, of tribulation ahead and help them establish a new life.

Such is the nature of conflict. And when extremists like the ISIS groups – or Al Shahab in East Africa and Boko Haram in West Africa – attack, people would rather leave their homes and major possessions than stay and face a dangerous future – not only from the insurgent groups, but from potential city destroying conflict as the supposedly ruling government tries to take back the territory lost. Syria comes to mind as well, with a huge flood of refugees into neighbouring Turkey and Lebanon. Those who have put their trust in gold at least have something with which they can at least start a semblance of a new life. Those who survived such conflicts in Bosnia and Croatia through flight during the sectarian civil war which engulfed those countries in the 1990s will be well aware of this and one suspects many will nowadays be retaining an emergency reserve of easily transportable wealth – of which gold is the most easily tradeable in an emergency – in case conflict should spring up again, however unlikely.

In Eastern Ukraine, much of the population in the apparently insurgent controlled Donbass region will be fearful of a heavy handed, and possibly indiscriminate, response by the Ukrainian army, particularly following the downing of one of its transport planes with heavy loss of life. People may choose to join the flood of refugees into Russia which they see at least as a way of preserving their lives, if not their property and if they have gold they have something they can trade to re-establish themselves in the event they are unable to return for whatever reason.

Small wonder therefore that gold buying is making something of a comeback in many parts of the world. The Middle East, for example, is seeing major gold purchasing while in the perhaps more politically stable, but traditional gold buying areas like India, where gold has stood the test of time in terms of an inflation hedge, demand remains strong despite the government’s attempts to rein it in to protect the nation’s balance of payments. 

So too across virtually all of Southeast Asia, some areas of which have a recent history of conflict, but virtually all of which have seen periods of out of control inflation. Even China – now the biggest gold buying nation of all - has seen citizens flooding to protect their wealth largely through inflation fears, but also for historical reasons.

But it is the U.S. which seems currently to control the gold price, perhaps through the machinations of the major bullion banks who can make vast profits through manipulating the price up and down by utilising the futures markets, and these historic reasons for owning gold are not really present.

Conflict is unlikely, bar some horrendous terrorist atrocity, which cannot be ruled out given the fanatical nature of some of the anti-U.S. political groups elsewhere in the world. Meantime inflation has been kept under reasonable control for many years. The Wall Street crash of 1929 is mostly outside living memory, but a repeat cannot be dismissed and some savvy investors will be holding gold just in case. A terrorist attack on the scale of 9/11 could well bring markets crashing down. It may be as well at least to hold some proportion of one’s wealth in gold as insurance.

In Europe, the rise of far right and far left leaning political parties is a cause for concern in terms of political stability, while Ukraine is close geographically to the continent’s centre. Russia under Putin seems to be seeking to regain some of its past powers and no-one knows how this may pan out. It will leave those in some of the former Soviet controlled Eastern European nations worried that the Bear may be flexing its claws in order to regain its influence – perhaps as much by destabilisation as by actual conflict.

The global banking system too remains stretched and bank collapses could leave people heavily exposed – just ask Greek Cypriots!

It is indeed an uncertain and perilous world we live in and holding gold as a wealth protector seems as important now as it ever has been – not necessarily for making huge gains as a result of a rising price, but as a protector against heavy losses should banks collapse and markets crash. It is a prudent policy to hedge one’s bets.