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The Louder the Drums of War, the Greater the Allure of Safe-Haven Gold

Proactive Investors  ( Original )
APR 13, 2018

There’s the so-called “flight to safety” trade when the stock market gets jittery. Bond inflows increase. Investors move into cash.

Then there’s the real flight to safety trade: moving into gold and silver when it looks like things are really about to hit the fan. Especially in times of military action.

Geopolitical risk increases by the day. Russia, China, North Korea, Syria, and on and on.

In times of significant geopolitical uncertainty, the so-called “safe haven” attractions of gold tend to override the influence of the dollar in pricing, as investors seek shelter in the world’s oldest store of wealth.

If the jungle drums of war start beating loudly, then uncertainty rises and the gold price does too.

That’s not just because the value of other assets becomes more questionable, or because earnings and profits are likely to fall.

It’s also because the dangers of that huge derivatives book unwinding suddenly leap back into the forefronts of investors’ minds.

Warren Buffet calls derivatives as they are currently structured “weapons of mass destruction.” Not everyone agrees with that view, but it is reasonable to concede the risks posed by a major and sudden shock to the global system of trade and commerce such as full-blown war between Russia and America. The financial consequences of that might make the global financial crisis seem like a walk in the park.

Historically, cattle, land and gold have been the three great stores of wealth. Real estate has held its relative value more than cattle, but it is less easily exchanged.

For the risk-averse, gold remains the only significant option.

ORIGINAL SOURCE: Why gold remains the safe haven asset of choice in times of geopolitical uncertainty at Proactive Investors on 4/13/18