Should We Prepare for The Worst And Buy Some Gold?
The comments below are an edited and abridged synopsis of an article by Arkadieuz Sieron
It’s worth being prepared for a crisis. Does that mean it pays to have some gold up your sleeve?
People laugh at preppers, those who stockpile beans and ammo in preparation for doomsday. Who takes these folks seriously? Well, as the pandemic and supply crisis showed us, we all should.
The problem is that crises seem unlikely until they occur. We think that this time is different, or that we’ll make it through somehow. Perhaps, but it’s easier when you are prepared.
Owning gold is a part of preparing for the worst, because gold is a store of value that appreciates when confidence in fiat currency declines. It’s also a safe-haven asset that shines during financial crises when asset prices generally decline. The best example may be the Great Recession, when gold performed much better than the S&P 500 Index.
Gold acts as a portfolio insurance policy, or a hedge against tail risks. It’s smart to have home insurance just in case of a fire. Similarly, the collapse of the financial markets is unlikely (although the Great Depression, late 2008, and early 2020 show that it is possible), but it’s nice to have a portfolio diversifier that is not afraid of black swans.
It’s about individual responsibility. Being prepared is about being realistic, hoping for the best but planning for the worst.
There are two important things to consider before going all-in with gold. First, you shouldn’t conflate holding gold as insurance with gold as an investment asset. When you want protection, you’re not interested in price trends. There might be a bear market, but gold would still fulfill its hedging role. You shouldn’t have more than 5-10% of your portfolio in precious metals (as insurance, you can invest more in gold as an investment or as part of your trading strategy).
Second, don’t treat gold as a panacea for all possible disasters. If you expect power outages, buy batteries and think about alternate sources of energy. Precious metals won’t power your home. It all depends on the particular conditions and how deeply civilization would devolve.