Get Ready for the “100-Year Flood”

The comments below are an edited and abridged synopsis of an article by Jim Rickards

One of the long-standing reasons to own physical gold or invest in gold mining shares is to hedge geopolitical risk, or the risk of natural disaster.

From the 14th century (Black Death) to the 17th century (30 Years’ War) to the 20th century (world wars), gold has been a reliable store of wealth. There is no reason to believe that such existential events are no longer a danger.

Currently, we face problems with Iran, Saudi Arabia, Turkey, Egypt, Venezuela and North Korea. Other hot spots include Syria, Ukraine and Israel. Then there are natural disasters, and new threats that are not traditionally geopolitical or natural: power grid collapses, cyberwarfare, hacking, data theft, killer robots, swarm attack drones and rogue artificial intelligence applications.

Rickards discusses the ‘100-year flood,’ which can be a Hurricane Harvey event or a black swan. Using the Bernoulli process, he calculates that over a 30-year period, the probability of one 100-year flood is 26%, or more than one in four.

When the 100-year flood hits, it’s too late to buy flood insurance. Likewise, when the next financial crisis hits, it will be too late to buy gold at today’s prices. The best time to buy flood insurance is when the sun is shining.