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Default Risk

10 Sep

Default Risk

Gold Market Discussion

One of the most important reasons to own gold and silver is to avoid major risks common to stocks, bonds, banks, and other financial assets and transactions:  the risk of insolvency and default.

All these financial markets and institutions carry a risk of insolvency and default.  Those are risks that grow more threatening with each passing day.  

But gold and silver are monetary commodities in their own right.  They are not claims to something else somewhere else down the road.  The value of an ounce of gold or silver is utterly indifferent to the issuer’s total debt, or the wisdom of its political leaders.   An ounce of gold is an ounce of gold no matter whose image or national motto is engraved on it.  

Its value is not contingent on someone else’s integrity.

That’s why it is such a high compliment to say that someone’s word “is as good as gold.”  It is claiming that there is no risk of their failure to abide by their word; there is no risk of default.

When investment advisors, money managers, and stockbrokers reluctantly agree that owning gold makes sense (a conclusion they often try to avoid), they try desperately to steer their clients into gold stocks or gold exchange-traded funds (ETFs).  They do so because it means that they still have control of their clients’ funds; their money stays in an account at the financial institution.

But with this advice, they deprive their clients of one of gold’s chief virtues.  All these “paper gold” investments still have a risk of default.

The Only Real Gold is Gold

What about Gold stocks?
Governments nationalize mines, expose them to wars, appropriate their profits with taxation.  At the same time mining companies can be guilty of fraud, mismanagement, and subject to disasters. 

…or Gold ETF’s (Exchange-Traded Funds)?
Bank holidays, risk of institutional mismanagement, insolvency, title challenges, and counter-party risk, hypothecation and re-hypothecation, outright fraud, government failure, and nationalization are among the risks that may impact paper claims to gold.

It’s Time to Put the Security of Your Wealth in Your Own Hands

In times like these, times of currency wars, unpayable debt, interest rate anomalies, sky-high government and business debt, central bank volatility and confusion, cultural stress and political polarization, state corruption, abuse of power and betrayal of trust, institutional failure, and widespread social and moral recklessness, protecting yourself and your wealth demands avoiding unnecessary risk.

You have probably heard it said that gold and silver are unique in the financial world because they are not someone else’s liability, they are not dependent on someone else’s promise or performance.

Make sure that you take advantage of these virtues.  Use gold and silver to protect yourself from default and insolvency risk.  Especially in times like these when those risks are heightened.

But you can only accomplish this risk avoidance with real, physical gold and silver that you take into your actual possession.  

We are here to help.

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