by Mark Motive
Euro Pacific Precious
Metals

The global
economy is in turmoil. Europe is on the verge of collapse, probably
taking the US down with it. As the euro-crisis worsens, we march
ever closer to outright monetization of European debt by the ECB
and, covertly, by the Federal Reserve. The developed world is perilously
close to a monetary deluge that could make the Weimar Republic’s
hyperinflation look like amateur hour.

Yet, I still
talk to Wall Street analysts who clearly misunderstand gold’s place
in a portfolio. Meanwhile, many people who are part of the world’s
wealthy class are hoarding gold. What do they know that others don’t?

If you ask
the common man in the street about investing in gold, most will
give you a strange look. After all, they believe investing is about
stocks, bonds, and CDs.

If you ask
someone with a bit more investing knowledge, they will tell you
to buy gold during inflationary periods.

If you ask
a relatively sophisticated investor, they will tell you to buy gold
during deflationary and inflationary periods. Some may even say
to buy gold during periods of uncertainty and instability, or when
real interest rates are negative.

However, if
you ask the world’s wealthy class about gold they will give you
a very different answer. At Plan B Economics, we’ve found that most
of the world’s wealthy class doesn’t view gold as an investment
at all! I would argue these folks have it right. Simply put, they
consider gold to be a store of wealth and believe that anytime is
a good time to own some gold.

With wealth
storage (a.k.a. wealth preservation) as their goal, the rich are
less fixated on daily fluctuations in gold prices. They aren’t trying
to earn short-term profits from gold ownership – they are trying
to maintain their overall purchasing power. Since the wealthy have
large asset bases, losses in purchasing power add up to big dollar
figures, but the wealth preservation characteristics of gold are
just as beneficial to the middle class.

Gold can protect
real wealth because it tends to move in a different direction than
other types of assets (i.e. gold is negatively correlated with other
assets), making it an effective portfolio diversifier. When gold
prices are falling, other forms of wealth are often rising in real
terms. When gold is rising, other assets are usually falling in
real terms. Gold has an offsetting effect when it is part of an
overall asset base – but there are more important reasons the wealthy
own gold.

As the world
sinks into greater financial and political uncertainty, the wealthy
want to protect their families from the unthinkable. Physical gold
can store substantial wealth in a compact, universally-accepted
form that can be hidden from the prying eyes of governments. So
if/when collapse truly occurs, as it has consistently throughout
history, the wealthy can escape with a big portion of their assets.

At this point,
some of you reading this may be rolling your eyes, thinking such
asset positioning is reserved for conspiracy theorists and survivalists,
but history and current anecdotal evidence suggest this is how many
wealthy people think. In fact, since I began writing on economics,
I have encountered many wealthy people who have caches of food,
precious metals, and weapons (but rarely admit it). They are acutely
aware that if society broke down, they’d be the first scapegoats
of the masses and any government rising to fill the power vacuum.

Ask the wealthy
and middle class people who escaped Hitler’s Germany (or many other
similar authoritarian regimes throughout history) about gold. These
people left behind houses, businesses, and paper assets to escape
their home country. They even left behind savings and securities
accounts, the withdrawal of which would have alerted authorities.
(Moreover, German currency and securities were worthless in the
eyes of non-German financial institutions.) They did, however, take
as much gold as was physically possible. To these people, gold wasn’t
an investment, but a way to smuggle a lifestyle across borders in
a suitcase.

I believe gold
can provide the same utility to the wealthy and middle-class alike.
Everyone should have a portion of their wealth stored in a fungible,
highly-concentrated, portable form. The goal here is to prepare,
not to predict. After-all, you buy homeowner’s insurance but never
expect your house to burn down.

So next time
you consider gold as an investment, ask yourself why you are buying
it. If you’re worried about 20% up and down moves, then you are
simply speculating on the price of gold. If you’re looking for a
portfolio diversifier, then you will be willing to accept gold’s
counter relationship to other asset classes. But if you are truly
looking to protect from economic or political collapse, and need
an enduring store of wealth, you may want to think like the wealthy
class and hold physical gold in a hidden yet easily accessible location.

January
10, 2012

Mark Motive
is the pen name of a respected business journalist. He is the publisher
and chief author of Plan
B Economics, the source for market insights overlooked by the
mainstream media.

Copyright
© 2012 Euro
Pacific Precious Metals