Gold News

Buying Gold for Wealth Preservation

Selfish? Yes. Imperative? Very plausibly...

SO HOW do you preserve wealth in this crazy economic environment? asks Greg Canavan for the Daily Reckoning Australia.

A few weeks ago we quoted from Richard Duncan's latest book, The New Depression:

'The hard truth is that it is not easy to preserve wealth. If it were, the families who were wealthy 200 years ago would still be wealthy today – and generally, they are not. In the very harsh economic environment that is likely to prevail over the next ten years, it is likely that a great deal of wealth is going to be destroyed.'

We suggested Buying Gold could be a way of preserving wealth. In response, we received this thoughtful response from reader NM (edited for brevity).

'You are very keen to persuade yourself and others that gold will preserve wealth. You take this (the above) statement to be true. I can think of plenty of wealth in the UK and Europe that goes back 200+ years and it tends to be based on land holdings, private companies, stockmarket equity, artworks and collectibles rather than gold, although gold would be part of the mix.

'Encouraging everyone to go into gold is the epitome of the "I'm alright Jack, bugger everyone else" smart Alec selfish mentality that so bedevils western societies. You spent many paragraphs this year berating the zombies in public service and government.

I have no objection to that but you are coming exceptionally close to that mentality of "we know best" – that it is a simple matter of pressing that button and pulling this lever. That there is a logical answer to the pickle we are in and that there is a group of people out there on whom we can land all the blame.

'No one had to buy all those overpriced houses with a miniscule deposit or "invest" in dotcom equities. No one had to vote in the Labour party on the basis of completely throwing out Work Choices legislation when a few amendments would have been sufficient to improve what was clearly putting more people to work. No one has to go on strike yet industrial action is on the rise.

At the top end, upper management is still doing everything to enhance their bonuses – until very recently the number of companies buying back their own shares and cancelling them to improve the Price/Earnings was at an all-time high.

They should have been giving the surplus back to their shareholders but they were encouraged to take this course by the fund managers. All of that wealth, that could have been put to better use in the hands of shareholders, will disappear as markets collapse.

'The point is that we are all complicit – society, the economy and the culture are all a function and product of what has gone before. I believe there is only one really sound piece of advice that you can give to anyone as we paddle thin air like the roadrunner who has run over the cliff – that is to pay off as much debt as possible so that your home equity is at the very least above 35%.

People are already doing that to a large extent which is why the economy is in trouble but there is no avoiding that. The politicians and the bankers continue to sell the line that there is a way out. By the time they realise that it is not true the Dow will be well on the way to 1000 points. More than 30 years will have vanished in a mist of complacency and hubris.

And gold? Well who knows but I doubt that it can withstand a deflationary episode commensurate with the trillions of Dollars of inflation that brought us to this point. The question you should be asking yourself is why is gold not going up?'

Let's start with the wealth preservation thing. And we're talking preservation, not creation. Jim Rickards recently wrote about this:

'When one enquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is 'a third, a third, and a third. This is shorthand for dividing one's wealth into one-third land, one-third gold and one-third fine art.'

Note that government bonds are not on the list. And yes, gold is not the only way to preserve wealth. But with land /housing in Australia ridiculously overpriced, and fine art being out of reach for most of us, gold remains as a standout, humble preserver of wealth.

We agree that Buying Gold is selfish. But what do you think drives human action? Survival, self-preservation...

The world is made up of individuals. Acting in their own self-interest. Selfishness is not the same as greed. We own gold. We do so to protect our savings, to ensure the financial well-being of our family. Do you really expect us, or anyone, to leave all of their savings at risk (in the banking system) just because it might be better for 'society' to do so?

If the world wasn't run by a bunch of crooks, we'd be happy to do it. But it is, and we don't trust them one little bit. So we take our meager savings out of the system, in protest against the clowns running it. If enough people did it, the system would cease to function. It would cause great upheaval...and ironically, the selfish gold owners (the messengers) would be shot.

But out of its ashes a better and more sustainable system would emerge. We have no idea what that would be. But we reckon if left to its own devices, without government intervention, the collective wisdom of humanity would come up with something better than the debacle we have now.

NM asks 'why is gold not going up?'

Does a nine month time horizon matter when we're talking generational wealth preservation? No.

As Rickards says:

'...success in wealth preservation requires a longer view, infused with a sense of history and a keen appreciation for worst case scenarios that too frequently become real.'

Thinking about Buying Gold? Find out more at BullionVault...

Greg Canavan is editorial director of Fat Tail Investment Research and has been a regular guest on CNBC, ABC and BoardRoomRadio, as well as a contributor to publications as diverse as and the Sydney Morning Herald.

See the full archive of Greg Canavan.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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