GIC’s director of economics and strategy, Yeoh Lam Keong, made an interesting statement on Tuesday that there will be further weakness in financial markets. He advises investors to go for gold, hold government bonds and currencies such as the yen, yuan and Canadian dollar. The US dollar is to be avoided “like the plague” as the United States monetise their debt by printing money.
That is all rather belated and even, ironical, considering GIC’s multi-billion dollar stakes in Citigroup and UBS. Nevertheless, it serves no purpose crying over spilt milk. As a matter of fact, I don’t believe any investors have been immune in this period of wealth destruction. The world’s richest are collectively poorer, with $2 trillion of wealth vaporized. Warren Buffett sufffered his worst year ever, losing $25 billion, but is still the second richest man.
Remember thatsuccessful investing is the result of being right more often than being wrong. Despite some wrong judgments from GIC, I give them a vote of confidence for their bullish calls on gold. A lot of investors actually took the contrarian view (it has proven to be profitable) and dump gold instead.
At first blush, they could be right as gold experienced significant price erosion since March. Some reasons could be margin calls, stop loss orders and fund liquidation as investors pounce on battered, oversold equities.
A Citibank memo which revealed profitable months in January and February also raised investors’ hopes in financial stocks. Then, JP Morgan Chase and Bank of America joined the parade in reporting profitability and all of a sudden, fears of nationalization are swept into the background.
I will think twice about selling gold though. Not because UBS made a bold prediction of gold prices hitting $2500. Such a frothy forecast combined with knowledge of inflation can get one extremely excited about gold’s prospects. However, I am not salivating over any profits. Instead, my faith in gold stems from the fact that it is a safe haven asset.
Gold exist in limited quantity and is valued as a stable element which does not corrode easily. It represent intrinsic wealth that is not a form of debt. Just about every investments, stocks, bonds, real estate, or derivatives rely on the faith and credit of another party. Even cash is based on government fiat, it’s just another certificate of debt and is intrinsically worthless.
Gold has historically provided the best protection against financial catastrophe and upheavals. Investors diversify into gold to protect their portfolio from currency crisis, bank runs, inflation, deflation, recession, and the fear of a crashing stock market.
Past experience in the currency failures of Argentina, Mexico and Uruguay suggested that investors who owned gold still had currency when banks were shut down and customers could not take money out of their own accounts.
Or with geopolitcal tensions and macroeconomic instability expected to rise in future, let’s assume a doomsday scenario of a war and a nation is being overrun by an aggressor - what happens is its currency ends up virtually useless. You can have $1 million in bank deposits, government bonds or cash but it all means nothing to the new regime.
Andecotal war stories tells us that people, especially those on the losing side, hoard gold in preparation for the worst. I am not saying a war is imminent or the army is not prepared, but part of psychological defense is to expect the unexpected. A hungry mob is particularly susceptible to revolutionary ideas like socialism and empirism.
Since attention is diverted away from depressing data like unemployment, bankruptcies, foreclosures, poverty, etc, a war can be good for politicians. It just takes a rogue nation and before you know it, a war is on our doorstep.
Even if everybody survive this recession without progressing into the Great Depression or an ugly war, the vigorous contest for natural resources (especially fossil fuels) when the global economy turnaround could present a case for military might to end intractable territorial disputes.
Just in case you are mistaken, I don’t enjoy talking about war, nor relish running into bomb shelters. There are already many pressing issues facing mankind like energy crisis and adverse climate changes, so there is no need to hasten our own destruction with bloodshed.
The pragmatic side of me likes to accumulates gold slowly as a safety precaution. I will just treat any capital gains as a bonus. If you are into active portfolio management, having 5% to 15% in gold is a good idea. This percentage provides balance, diversity and insurance for your portfolio, and excellent long-term profit opportunity.
Ok, now that I have rambled enough about gold, how do we get our hands on the prized asset? Besides buying physical gold (bars and coins) there are other ways to own gold which are discussed below. Singaporeans can utilize their Central Provident Fund Ordinary Account savings to invest in gold savings accounts or gold certificates. Read more... GIC’s director of economics and strategy, Yeoh Lam Keong, made an interesting statement on Tuesday that there will be further weakness in financial markets. He advises investors to go for gold, hold government bonds and currencies such as the yen, yuan and Canadian dollar. The US dollar is to be avoided “like the plague” as the United States monetise their debt by printing money.
That is all rather belated and even, ironical, considering GIC’s multi-billion dollar stakes in Citigroup and UBS. Nevertheless, it serves no purpose crying over spilt milk. As a matter of fact, I don’t believe any investors have been immune in this period of wealth destruction. The world’s richest are collectively poorer, with $2 trillion of wealth vaporized. Warren Buffett sufffered his worst year ever, losing $25 billion, but is still the second richest man.
Remember thatsuccessful investing is the result of being right more often than being wrong. Despite some wrong judgments from GIC, I give them a vote of confidence for their bullish calls on gold. A lot of investors actually took the contrarian view (it has proven to be profitable) and dump gold instead.
At first blush, they could be right as gold experienced significant price erosion since March. Some reasons could be margin calls, stop loss orders and fund liquidation as investors pounce on battered, oversold equities.
A Citibank memo which revealed profitable months in January and February also raised investors’ hopes in financial stocks. Then, JP Morgan Chase and Bank of America joined the parade in reporting profitability and all of a sudden, fears of nationalization are swept into the background.
I will think twice about selling gold though. Not because UBS made a bold prediction of gold prices hitting $2500. Such a frothy forecast combined with knowledge of inflation can get one extremely excited about gold’s prospects. However, I am not salivating over any profits. Instead, my faith in gold stems from the fact that it is a safe haven asset.
Gold exist in limited quantity and is valued as a stable element which does not corrode easily. It represent intrinsic wealth that is not a form of debt. Just about every investments, stocks, bonds, real estate, or derivatives rely on the faith and credit of another party. Even cash is based on government fiat, it’s just another certificate of debt and is intrinsically worthless.
Gold has historically provided the best protection against financial catastrophe and upheavals. Investors diversify into gold to protect their portfolio from currency crisis, bank runs, inflation, deflation, recession, and the fear of a crashing stock market.
Past experience in the currency failures of Argentina, Mexico and Uruguay suggested that investors who owned gold still had currency when banks were shut down and customers could not take money out of their own accounts.
Or with geopolitcal tensions and macroeconomic instability expected to rise in future, let’s assume a doomsday scenario of a war and a nation is being overrun by an aggressor - what happens is its currency ends up virtually useless. You can have $1 million in bank deposits, government bonds or cash but it all means nothing to the new regime.
Andecotal war stories tells us that people, especially those on the losing side, hoard gold in preparation for the worst. I am not saying a war is imminent or the army is not prepared, but part of psychological defense is to expect the unexpected. A hungry mob is particularly susceptible to revolutionary ideas like socialism and empirism.
Since attention is diverted away from depressing data like unemployment, bankruptcies, foreclosures, poverty, etc, a war can be good for politicians. It just takes a rogue nation and before you know it, a war is on our doorstep.
Even if everybody survive this recession without progressing into the Great Depression or an ugly war, the vigorous contest for natural resources (especially fossil fuels) when the global economy turnaround could present a case for military might to end intractable territorial disputes.
Just in case you are mistaken, I don’t enjoy talking about war, nor relish running into bomb shelters. There are already many pressing issues facing mankind like energy crisis and adverse climate changes, so there is no need to hasten our own destruction with bloodshed.
The pragmatic side of me likes to accumulates gold slowly as a safety precaution. I will just treat any capital gains as a bonus. If you are into active portfolio management, having 5% to 15% in gold is a good idea. This percentage provides balance, diversity and insurance for your portfolio, and excellent long-term profit opportunity.
Ok, now that I have rambled enough about gold, how do we get our hands on the prized asset? Besides buying physical gold (bars and coins) there are other ways to own gold which are discussed below. Singaporeans can utilize their Central Provident Fund Ordinary Account savings to invest in gold savings accounts or gold certificates. Read more...
