Gold: The Ultimate Salvation Investment

by Alexander Green, Chief Investment Strategist
Thursday, May 27, 2010: Issue #1269

There are a lot of reasons to buy gold.

Besides being lovely to behold, gold has an attractive combination of chemical and physical properties. It’s virtually immune to the effects of air, water and oxygen. It will not tarnish, rust, or corrode. And it is completely recyclable.

As Time magazine pointed out last week: “It is an amazing metal. It can be pounded into a sheet so thin that light passes through it, yet the sheet won’t crack. Gold can be stretched into wires thinner than a human hair, yet those wires will conduct electricity beautifully. Implant it in a human body in the form of a medical device, and it will resist the growth of bacteria. Gold is beautiful, pliable, ductile, strong. The Stone Age, Bronze Age, and Iron Age all came and went, but gold is forever.”

In short, gold is used in everything from wedding bands, to fillings, to optic lasers – and more…

  • Thousands of mechanical devices require gold to ensure reliable performance over long periods.
  • Billions of gold-coated electrical connectors are used throughout the computer, telecommunications and home appliance industries.
  • Weather and communications satellites depend on gold-plated shields for protection from solar heat.
  • Even the automobile industry depends on gold-coated contacts for sensors that activate air bag systems.

The price of “the barbarous relic” recently hit new all-time highs. But that has little to do with gold’s fabulous properties.

Gold is also the color of anxiety. And investors are fearful right now…

Why You Don’t Want to See $5,000 Gold

Like all sensible investors, I own gold and gold shares. But I truly do not want to see the metal soar to $5,000 as some are predicting. Why?

Because, in all likelihood, that will be bad news indeed for the economy and our standard of living, not to mention the rest of your investment portfolio.

By and large we are living in disinflationary times. Yes, the price of food and oil (and hence gas at the pump) have climbed over the past few years. But technology and deregulation have reduced the prices of many other things…

  • Look at the computing power you get for the money today. (And look how those computers lower costs for business.)
  • Deregulation has brought down the price of airline tickets 25% – in constant dollars – over the past 15 years.
  • When I went to college out of state many years ago, I didn’t call home that often for one simple reason: I couldn’t afford it. But the break-up of Ma Bell has reduced the cost of long-distance calls to a pittance.

There is little threat of sharply higher inflation in the near term. But the longer term is a different story. And as the mess in Greece has proven, poor decision-making can cause long-term problems to suddenly show up on your doorstep.

Gold: Your No. 1 Economic Insurance Policy

Right now, gold is rising due to a lack of confidence in government and the reality that government bailouts don’t necessarily fix problems. Sometimes, they just kick the can down the road awhile.

All the European Union has done, for instance, is take the risk of owning Greek sovereign debt away from banks and other creditors and passed it on to taxpayers. Politicians often believe they can do magical things with other people’s money.

  • We all know what happens when an individual exercises long-term irresponsibility in his financial affairs: personal bankruptcy.
  • We’ve all seen what happens when a highly leveraged business can no longer service its debt: corporate bankruptcy.
  • And in the years just ahead, Westerners may very well see what massive fiscal irresponsibility does to national governments, their debt ratings and their currencies.

No one can say exactly how and when this will play out. But there is a distinct possibility that gold will be your salvation investment.

That means – just like property and casualty insurance – that gold is something you really can’t afford not to own.

Good investing,

Alexander Green