Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Should We Prepare For The Worst And Buy Some Gold?

By Arkadiusz SieronCommoditiesFeb 25, 2022 09:40AM ET
www.investing.com/analysis/should-we-prepare-for-the-worst-and-buy-some-gold-200618789
Should We Prepare For The Worst And Buy Some Gold?
By Arkadiusz Sieron   |  Feb 25, 2022 09:40AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

I have to confess something. I always laughed at preppers (aka survivalists) – people who spend their entire lives stockpiling beans and ammo in preparation for the highly unlikely doomsday scenarios. C’mon, who would take these freaks seriously? Well, as the pandemic and supply crisis showed us, we all should.

When most people scrambled for masks and hand sanitizers, preppers laughed. Preppers laughed when most people fought epic battles for toilet paper and something to eat to survive the Great Lockdown. When most people were confronted with surging inflation and supply shortages of different products, preppers laughed. When most people panicked upon hearing about energy blackouts, preppers laughed. It seems that mocked preppers got the last laugh, after all.

Hence, the COVID-19 epidemic made it clear that the world is not a paradise flowing with milk and honey and that bad things do really happen, so we should be more prepared for possible calamities, even if they look like remote possibilities. For example, experts now point out the threat of cyberattacks, and just last month, Kazakhstan’s government turned off the internet nationwide, depriving its citizens of access to their bank accounts.

The problem is, of course, that crises always seem highly unlikely until they occur. Meanwhile, historical cases are too distant and abstract for us, and we tend to think that “this time is different” or that “we’ll make it through somehow.” Perhaps you will, but it’s much easier when you are prepared. When other people panic, you don’t because you have made your preparation and have a clear plan of action.

You see, the issue is not if the crisis hits, but when. It’s just a matter of time. Even the government suggests storing at least a several-day supply of non-perishable food. However, the problem is that when things are going well, people don’t think about preparing. Why should we worry and spoil the fun? Let’s drink like tomorrow never comes! Maybe the problem will somehow disappear by itself, and if it doesn’t, we’ll deal with it later.

I got it, but how does it all relate to gold? Well, quite simply. Owning gold is a part of preparing for the worst. This is because gold is the store of value that appreciates when confidence in fiat money declines. It’s also a safe-haven asset, which shines during financial crises when asset prices generally decline. The best example may be the Great Recession or the 2020 economic crisis when gold performed much better than the S&P 500, as the chart below shows.

S&P 500 And Gold Prices
S&P 500 And Gold Prices

You can also think of gold as a portfolio insurance policy or a hedge against tail risks. A house fire is not very likely, but it’s generally smart to have insurance, you know, just in case. Similarly, the collapse of the financial markets and the great plunge of asset prices are not of great probability (although the Great Depression, late 2008, and early 2020 show that they are clearly possible), but it’s nice to have a portfolio diversifier that is not afraid of black swans.

In a sense, the whole issue boils down to individual responsibility. Do you take responsibility for your life and for being prepared for different scenarios, or do you count on other people, the government, or simply luck, magically thinking that everything always goes well? To be clear, being prepared doesn’t equal being pessimistic – it’s rather about being realistic and hoping for the best, but planning for the worst.

However, there are two important caveats to consider before exchanging all of your paper currency for gold coins. 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. This is also why you shouldn’t own more than about 5-10% of your whole portfolio in precious metals (as insurance, you can invest more in gold as an investment or as a part of your trading strategy).

Second, don’t treat gold as a panacea for all possible disasters. It all depends on what you are preparing for. If you expect power outages, buy batteries, power banks, and think about alternate sources of energy. Precious metals won’t power your home. If you fear a zombie apocalypse (who doesn’t?), flamethrowers and rifles seem to be better weapons than gold bars (although large ones can serve quite well). If you can’t wait for a nuclear explosion (who can?), you will need a proper shelter with uncontaminated food rather than shiny metal (pun intended). It’s possible that in such a post-apocalyptic world, people would initially return to a commodity-based standard rather than the gold standard. It all depends on the particular conditions and how deeply the civilization would devolve.

Hence, don’t be scared by dodgy people and false advertising into buying gold because of imminent hyperinflation, the total collapse of the financial system, nuclear greetings from Kim Jong-Un, or another calamity. The role of gold is not to rescue you from all kinds of troubles, but to be insurance that pays off during economic crises.

Should We Prepare For The Worst And Buy Some Gold?
 

Related Articles

Tim Knight
Gold Approaches Key Support By Tim Knight - Jul 01, 2022 2

Precious metals haven’t basked in glory days since 2011, over a full decade ago. Earlier this year, gold had a brief day in the sun due to the Ukraine war, but it has tumbled about...

Arkadiusz Sieron
Stagflation Could Make Gold Happy By Arkadiusz Sieron - Jul 01, 2022

The upcoming stagflation might be less severe than in the 1970s. So is the Fed’s reaction, which could mean good news for gold. There are many terrifying statements you can...

Should We Prepare For The Worst And Buy Some Gold?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (15)
Pinball Preparedness
Pinball Preparedness Feb 27, 2022 7:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ahhh, so you've finally come to be enlightened.  Now if we can get the other 98% of the world to WAKE THE F UP!
Mr Doodl
Mr Doodl Feb 26, 2022 12:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This article is not helpful.
Miles Mathewson
Miles Mathewson Feb 26, 2022 9:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Of course. Putin just said he can't afford to keep fighting for Kiev for months and might resort to Nuclear option just like Hiroshima if that happens!
Тони Chuk
Тони Chuk Feb 26, 2022 8:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
i am baying gold because of data and facts. since 2000 to this days gold has 550% profit . for example s&p500 has 200% profit. the last 5 months it made profit between 3 and 10% depends of the time you check it, and in the same time market lost 20%. The end:)
David CA
ILoveQE Feb 26, 2022 6:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Everyone should have gold & silver in their investing as hedge against inflation. However, I'm still undecided about crypto.
Doug Wildman
Doug Wildman Feb 26, 2022 5:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold is a hedge against stupid. Stupid fiscal policy and geopolitical distress.
Waliu Abideen
Waliu Abideen Feb 26, 2022 4:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how can you help
Waliu Abideen
Waliu Abideen Feb 26, 2022 4:14AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Feb 26, 2022 2:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
gold is a good bye going to 600
Tom Sc
Tom Sc Feb 26, 2022 2:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
dollars?
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Feb 26, 2022 2:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Tom Sc yes USD
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Feb 25, 2022 8:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
time to say goodbye to gold
Edward Chong
Edward Chong Feb 25, 2022 8:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
haha i hope u will be around when it pops back to 2k.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email