There is no other subject I would want to start with this week than Paris. It seems almost irrelevant to talk about wealth protection when people have been killed like this. I found out through my teenage son late on Saturday evening. We’d just had some friends round for a meal. Then as I watched the news into the early hours descend into more and more horror, the contrast between the peaceful atmosphere we’d just enjoyed and what was now happening to people in France was painful. I’m sure many of us haven’t slept well since.
I grew up on the South Coast of England. On a clear day we could see France from our girl’s school overlooking the Channel. Not a bad way to day dream away a Science lesson. Childhood was punctuated with day trips to France, closer to us than most U.K. towns; where we’d practice our French in tiny patisseries and sit in French squares having brie and baguettes, before jumping on the 45 minute ferry home.
I have read so many commentaries since. What we must do. What we mustn’t do. Why this happened. Why this will happen again. I’m sure, like you, I’m tired. But when I step back, it seems – tragically, level-headedly – to be even more relevant to talk about how to protect ourselves, in all ways, including economic.
This morning we have Russia and France offering military support to one another to bomb ISIS. “Vladimir Putin has ordered his warships to co-operate with the French military as both countries launched revenge attacks on ISIS targets in Syria. Russia has hit the ISIS ‘capital’ Raqqa with cruise missiles – just hours after saying the passenger jet brought down in Egypt had been bombed.” (Daily Mail, 17 November 2015). We have the Germany v. Holland football match cancelled in Hanover Stadium last night due to a “concrete” bomb threat. We have increased armed police at Euro Star, our airports and major sites across our cities, including our iconic Wembley Stadium. We had Russia admitting yesterday that yes, an ISIS bomb did bring down their passenger jet over Egypt. In the early hours today, two U.S. to Paris flights made emergency landings after bomb threats. All passengers are now safe. Add to this the continuing Islamic terror attacks in Nigeria, Israel, Lebanon and the wider Middle East. As I write this I have a live news feed open of a raid on the terrorists suspected location in a suburb of Paris, with extremely heavy gun fire and one female terrorist blowing herself up with a bomb vest. (The Telegraph) Let’s just re-read that last sentence. How must the residents of a major Western city feel, to be woken at 5.00 am to the sound of gunfire, bombs and terror, again?
I’m sure you know all these headlines. It all leads – suddenly, as is usually the way – to a dramatic increase in a corporate sense of foreboding uncertainty about the future. “Politically and fiscally, security has overnight become the number one priority. Even in Britain, where the Government is about to announce deep departmental spending cuts, there is all of a sudden no shortage of money for combating cyber terrorism. Spending on the police has been cut by 14pc in real terms in England and Wales over the past five years. These cuts may now have to be reversed, with more bobbies on the beat. The same will also be true of the military, where £2bn of extra spending on special forces, drones and fighter aircraft has already been pledged. The Chancellor’s fiscal consolidation plan may soon be unravelling before his eyes. The second objective – fear – is a much harder thing to measure, at least in terms of economic impact. In a 2011 study, the US economists Gary Becker and Yona Rubinstein found that the fear factor will generally have behavioural effects out of all proportion to the likelihood of actually being caught up in such an event.” (Europe is sliding towards the abyss, Jeremy Warner, The Telegraph, 17 November 2015)
We have written several times before about the rumblings of World War III. I’m not being dramatic when I say I wonder too. One of my teenagers said at breakfast this morning, “We’re talking more about Paris at school.” Then they paused, “Some of my friends are worried about World War III.” These are British teenagers, thankfully not in a major city but nevertheless they are well informed, intelligent young people and they can see the growing signs. They are only picking up on this increased uncertainty. And so, it is wise to look at this ourselves. If the world does descend into more and more conflict – if this is the future of mainland Europe and I hope so much that it isn’t – but if we are facing increased conflict, what can we do?
Well, we know rationally that many Middle East nations control our oil supply. We know that Russia and China are manoeuvring to remove the dollar as a world currency. Quietly, behind the horrific headlines on Saturday morning coming out of Paris, the following was announced as regards to China: “China on Saturday welcomed backing from IMF experts that the yuan should be included in its reserve currencies, saying the move would strengthen the world’s financial system. Now the world’s second-largest economy, China asked last year for the yuan to be added to the elite basket of SDR currencies, but until recently it was considered too tightly controlled to qualify. It now looks likely the yuan will be formally admitted to the IMF’s “special drawing rights” currency basket at the end of the month, which would mark a milestone in China’s efforts to become a global economic power.” (China welcomes IMF backing to make yuan world reserve currency, 14 November 2015)
I read an article entitled “The State of the S&P 500 Before and After the Paris Terror Attacks” and, with respect, it told me absolutely nothing. (Townhall Finance, 17 November 2015)
By contrast, on Sunday night, John Ficenec of The Telegraph calmly wrote a central piece in The Telegraph titled, “Gold remains the best insurance for a crisis.” It is truly wonderful to see a mainstream financial reporter looking at the big picture, the historical position Gold (and Silver) have always held. It is a very level-headed piece, especially in light of the fact that it was published 48 hours after events that took all our collective breath away in shock.
“As central banks race to devalue currency private individuals are hoarding record amounts of gold. The price of gold might be falling, but private individuals are buying record amounts of the precious metal, and as fears grow about the outlook for the global economy the long term attraction of gold remains. The strength of the US dollar and the threat from rising interest rates have made it a tough year for gold. The yellow metal was down 9pc last week to reach a five-year low at $1,083, and that marks a 43pc fall from the all-time high of $1,900 reached in 2011. However, the fundamentals, characteristics and attractions of gold are undiminished because we remain in times of extreme intervention by governments around the world, and for thousands of years gold has been the best insurance during times of uncertainty.”
He uncovers a staggering fact from the latest report of the World Gold Council: “UK demand for owning physical bars and coins jumped 67% to 2.5 tonnes.” We encourage you not to be put off be the “paper” price of gold being pummeled into an elongated plateau over this last year but to listen to those figures: UK demand for owning physical bars and coins jumped 67% in the last year! These figures are hard to get hold of, so it is refreshing to see them published in a respected broadsheet. So, while the gold “price” (currently set only in paper) continues to be derided by most mainstream commentators, those in the know increased the amount of Bars and Coins they own by a massive 67%. We would like all our readers to be aware of this and to take the plunge yourself in owning even a small collection of Gold and Silver coins and bars.
Because, Physical Gold and Silver are in short supply and we are being beaten in that acquisition of Physical Gold and Silver by one other country – China.
“The latest report from the World Gold Council that showed bar and coin demand increase by 33% during the third quarter to 295.7 tonnes, led by a 70pc year-on-year increase in Chinese investment.” John Ficenec continues: “The first rule of investment is preservation of capital. The second is to go searching for gains or income that fit with your appetite for risk. Gold has been the insurance of choice for thousands of years to satisfy the first rule, despite the fact it generates no income and actually incurs costs for storage.” I politely disagree with him on the “fact” that it generates no income.” It does, it’s just called something else. Please see our previous blog on the Seven Most Important Lies About Gold on this point. Here is a short extract: “This silliest lie of all is meant to portray gold as lower class. But no wealth instrument pays interest until transferred to a counter-party. Gold handed to a counter-party does pay, but it’s not called “interest.” In addition, “what’s true is your currency doesn’t pay interest at all, until you give away your controlling possession to a counter-party – like putting your cash in a bank or loaning it to a relative. And the interest you’re paid for taking such risk is heading to zero or negative.”
But, we understand what John Ficenec is saying. Gold does not bring you a monthly dividend as such, unless you sell a little. But it can and has blown other investments out of the water, when it comes to profit and increase in price, especially in times of economic collapse and war. And indeed, Ficenec returns to this theme in the conclusion of his article:
“One of the most interesting reasons that can be linked to the falling gold price is to be found in “Gresham’s Law” that “bad money drives out good”. The Tudor financier, Sir Thomas Gresham, found that: “When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.” Artificial currency devaluation is nothing new. It is as old as the pyramids themselves.[Today] the money printing continues apace, while demand for physical gold is rising sharply. The first rule of investing is capital preservation. And in the face of mass currency devaluation around the world then an allocation of about 5% in assets such as gold looks sensible. The future is uncertain and gold is the most effective insurance against that.”
This is exactly the sad but logical premise with which we started.
And a little word about Silver. It too has endured a price pumelling the last 12-18 months as on the one hand it is an investment metal and therefore tends to track Gold prices. But on the other hand, Silver is a commercial metal and is therefore expected to be in even more of a demand than Gold over the next five years:
“Silver prices are likely to gain in the next five years as demand for solar panels grows on a concerted drive by governments to reduce global carbon dioxide emissions, an analyst said. Silver, a key component of solar cells as it is the best metallic conductor of heat and electricity.” (CNBC, 18 November 2015)
As we enter the season of Christmas, why not combine the expenditure of Christmas shopping into this very sensible move of wealth protection and buy your loved ones Gold and Silver coins or bars? We published a piece last week on not only the many choices of Christmas gifts of Gold and Silver coins and bars, together with presentation boxes, but also the wealth and tax advantages of purchasing such stunning gifts for your loved ones to you, the purchaser. Take a look and enjoy a read of “The Perfect Gift: Gold and Silver“
Call us today on 01768 618618 to chat through what products will best suit your budget, TAX saving plans and safe haven hopes. We very much look forward to hearing from you.