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It only took a month for most short memoried investors to forget about or shrug off the years of ramifications for which markets are in store as a result of the British vote to leave in the June 23rd Brexit referendum. Yet the real world ramifications of the decision are again popping up everywhere. This started over the weekend at the annual G20 Summit and has continued with a raft of negative economic data emerging from the world’s fifth largest economy. Impacts of it can already be seen straining the global mergers and acquisitions markets as well.

G20 Leaders Worried About Continuing Brexit Fallout

The G20 annual summit has a lot on its plate. So you know when British Chancellor of the Exchequer Phillip Hammond says that the Brexit risks for the world economy came up repeatedly during the summit that it is a sobering and serious relevant issue for investors around the world. The G20 leaders statement claimed that Brexit increases the risks to the overall world economy. They said that it only “adds to the uncertainty” facing the global economy at the end of their two day summit in China. G20 economic leaders were obsessed with the topic at the meeting and argued for the United Kingdom to stay a “close partner of the EU.” What is more, the G20 leaders are worried that breakup discussions between the European Union and the United Kingdom will turn ugly and be fraught with conflict and bitterness, the BBC reported.

Amid the decisions made at the summit was the pledge for the G20 country finance ministers to work to build back up the world’s economy as well as to address the issue of trade protectionism that will likely arise as a result of the Brexit leave vote. Despite all of this confident and optimistic talk about being able to handle the fallout from Brexit, the underlying worry of the G20 member states is clear. Phillip Hammond put it best when he stated, “The reality is there will be a measure of uncertainty continuing right up to the conclusion of our negotiations with the EU.” This is one story to keep your eye on, though the majority of global investors seem to have already written it off at their extreme peril. Brexit is exactly the type of global black swan event that can shake your investment and retirement portfolios to their core.

Real World Economic and Investment Effects of Brexit Already Materializing

Hard on the heels of the G20 summit came the first raft of data out of the U.K. on how Brexit is affecting the real world economics of the second largest economy in Europe. Following signs of growth for the second quarter (pre-Brexit vote), the manufacturing conditions in Great Britain are anticipated to decline over the coming quarter as a result of the momentous vote. The CBI Industrial Trends Survey had shown a manufacturing sector recovery for the three months of the second quarter. Employment had grown as output expanded at the quickest rate in two years from improving domestic orders. The business respondents held a grim view for activity in the upcoming quarter. A paltry 5% of companies have greater optimism for the overall business environment than did three months ago. An overwhelming 52% stated that they are less optimistic. The remaining 47% were unchanged in their optimism. This reading represents the worst results since January of 2009 at the peak of the 2008 Global Financial Crisis and Great Recession. It is not a harbinger of great things to come for the world center of banking, insurance, finance, forex, and precious metals.

The uncertainty created by the grueling dragging effects of the long term Brexit affair are even impacting the level of global mergers and acquisision activity already. A new report released today by law firm Baker & McKenzie demonstrates that over the next five years, global M&A could decline by as much as an eye watering $1.6 trillion during the course of the coming five years. The only way to sidestep these ramifications which the report forecasts is if Britain rapidly leaves the European Union under a deal that provides it with ongoing free trade access to the single market. However well this issue proceeds, the global takeover activity will still be reduced. A disorderly and prolonged rancorous exit will only add to the economic and political uncertainty and trigger a greater decline in international combination activity.

Baker & McKenzie’s Global Chair of Mergers and Acquisitions Michael DeFranco suggested that in order to restore global M&A confidence, the new British government needs to take on the huge challenge of redefining its trading relationship vis a vis the EU as soon as it possibly can. Otherwise he predicts that the global investment territory becomes even more dangerous. With all of the continuing instability and financial chaos that will reverberate for potentially years to come because of the British Brexit, this is not the time to be parted from your gold positions. This is the time to increase your gold retirement holdings as much as you reasonably can.

With European political and economic powerhouses France and now Germany struggling with Islamic State terrorism and the second greatest economy in Europe Great Britain suffering from slow motion financial meltdown after the Brexit vote, you can not take financial stability in the world for granted any longer. These geopolitical crises (and others like the just failed Turkish coup) remind you that you need to have a financial backstop for your investments and retirement funds. Gold has always been and remains the best answer as a safeguard against these and other as of yet unknown threats. The ultimate safe haven protects you from political, financial, and inflationary instability all at once.

France on the Verge of a Nervous Breakdown or Even Civil War?

France is suffering from three massive and devastatingly successful terror attacks in just over a year, each one seemingly progressively worse than the last one. Without a doubt, this is a harbinger of instability for the developed world. Expatriate residents in France have reported that this third and latest example of carnage, this time in Nice on the French national Bastille Day, has pushed the French to the border of serious escalation. What do you get when you combine an increasingly isolated, desperate, and radical Islamic immigrant population with an ever more popular right wing anti-immigrant political group in a nation awash in guns— the explosive and poisonous recipe for a brutal civil war. It may at first sound far fetched to think that the traditional French could turn on their Muslim immigrants, but consider what one senior French intelligence official Patrick Calvar told a committee in French parliament last week before the most recent terrorist attack in Nice occurred. He stated that only one more such incident could lead to a bloodthirsty civil war in France.

This is a troubling and serious possibility when the third largest economy in Europe and sixth largest on earth stands poised on the brink of a second French revolution-like series of massacres. Sadly the elected government does not seem to be able to do a thing to stop the so far radical instigated violence. Just last week, French Prime Minister Manuel Valls infuriated French citizens across the country with his suggestion that they should simply “learn to live” with the ongoing threat and brutality of terrorism. It goes a long way to explain why the likes of the National Front, Marine Le Pen’s anti-immigrant party, is doing so very well in local elections and the national polls. She only fans the flames higher and worse with such explosive comments like the one she made just last week. “The war against Islamic fundamentalism has not yet begun. Now it is necessary to urgently declare it.” You can understand where she and her sympathizers are coming from when you look at the terrorist death toll data for France over the last nearly five years. Starting with the March 2012 attack on Toulouse that killed three children at a Jewish school and four French soldiers outside the barracks, there have been another shocking 14 terrorist attacks in France that have caused over 250 deaths and 600 injuries.

Islamic State Begins Targeting Germany

Let’s hope that more of the same is not in store for Germany, which just suffered from its first Islamic State claimed terrorist attack yesterday. A 17 year old Afghan immigrant assaulted tourists on the train near the Southern German city of Wuerberg. He came to Germany unaccompanied as a minor and was living with a foster family in the area. With an ax and knives he severely wounded four people on the train before attacking police and being shot. The local police found a hand painted IS flag with his belongings. The man shouted God is greatest (Allahu akbar) as he attacked.

This first attack in Germany answered the September of 2014 call from Islamic State spokesman Abu Mohamed al-Adnani for supporters and soldiers to take up knives, stones, or vehicles as weapons to kill unbelievers. It remains to be seen if this was simply an isolated assault on the largest economy in Europe and fourth largest in the world or the beginning of many more to come. In either case it is troubling for the prospects of developed world stability and safety.

UK Credit and Government Finances Under Pressure

Rounding out a perfect trifecta of threats in economically important Europe are the new financial problems plaguing Great Britain since their stunning June 23rd Brexit Leave vote in the national referendum. Britain’s credit rating has been downgraded two notches at once since then by the major sovereign credit ratings agencies. Moody’s just announced that the creditworthiness of the U.K. is under additional downward pressure for the future in the wake of its choice to leave the world’s largest economic block the European Union. Moody’s said, “Uncertainty surrounding the UK’s withdrawal from the EU will likely affect economic growth and weaken government finances.” The British Debt to GDP ratio is now likely stagnated at a dangerously high 90%. A potentially severe recession for Britain in the coming year now looks increasingly likely. This poses numerous risks for the world economy at large as London remains the global center for banking, forex, precious metals, and insurance. Now is the time to hold your gold tighter than ever with the latest problems and rising instabilities in the fourth, fifth, and sixth largest economies in the entire world.

Silver is all too easily and often forgotten standing in the shadow of its big brother gold as it does so much of the time. Analysts and investors stopped overlooking this other safe haven metal on Monday as the prices of silver smashed through a two year old high, reaching over $21 per ounce. Silver is now up an impressive almost 49% on a year to date comparison. Despite this fact, the little brother of gold likely still has more room to run than does the yellow metal at this point. We’ll look at the several key reasons here.

China Massively Increasing Its Imports of Silver

As with most good bull market rally stories over the last decade or more, it all starts with China. The Wall Street Journal recently reported that silver roared to a new two year long high this past Monday when Chinese buyers placed serious bets on both the silver futures market and by acquiring enormous quantities of the physical silver metal itself. On the Fourth of July holiday, the price of silver in spot markets rocketed nearly 7% as physical silver contracts and benchmark futures trading in Shanghai hit their limit. Silver futures for September went for $20.41 per ounce on the action, having reached over $21 an ounce in the prior 24 hours period.

China has also continued to be one of the world’s largest silver importing countries because of the metal’s myriad of industrial uses. Thanks in no small part to China’s massive solar panel construction, they now consume a full 20% of worldwide silver demand. In the first ten months of 2015, Chinese silver imports reached 2,678 tons, as much as they imported for the entire year of 2014, per the Wall Street Journal.

Solar Power Industrial Demand For Silver Growing

Speaking of solar power and panels, this has become the hottest fast growth industrial use for the metal in recent years. Silver is finding a larger use for building solar panels now than ever before. An impressive 10% of all global silver demand now stems from new solar panels. This source of demand only looks set to continue to grow in coming years. Silver has this advantage over gold in that it is not only a significant investment commodity, but also a major industrial use one as well.

Silver Has More Room to Run Up To Its Former High than Gold Does

Silver has more attraction than its dual nature as both an industrial and investment metal. Its all time high is still far away at over $49 an ounce from its peak level in 2011. This means that silver has 133% more to go to reach its former glory. Compare this to gold’s former high of over $1,900 per ounce at the same time. Gold only has around 41% more to rally before it runs into its all time high. This makes silver’s range of potential appreciation look a whole lot more attractive than gold’s at the moment. As a case in point, silver has run up by approximately 19% from the global financial uncertainty created by the Brexit vote results at the same time that gold has managed to tack on an about 8% rally.

Gold to Silver Ratio Indicates Big Gains Due Silver

The age old gold to silver ratio also indicates that big gains are due for undervalued silver prices. Historically, for every single ounce of gold that was mined around ten ounces of silver were unearthed. The historical gold to silver price ratio averages around 40:1 (and even lower if you look at a longer time frame). These days the ratio typically trades in excess of 70:1. Assuming that gold prices hold their own, then silver is trading at substantially below a historically normal comparative price. This presents major opportunity for this long followed and traded ratio to come back to a more normal level, meaning that silver prices would have a significant way to run.

China Leading the Way In the Competitive Global Currency Devaluation

The Brexit vote results have kicked off the latest round in the ongoing competitive global currency devaluation wars. China’s own Yuan recently reached a record low. The British pound has now touched 31 year lows. The European Union has similarly been engaged in quantitative easing and unparalleled monetary stimulus for many months now in an effort to bring the Euro down as well. The only major currencies left to devalue against are both the U.S. dollar and safe haven assets like silver and gold. Practically all of the major fiat currencies are swirling around the proverbial drain in a race to the bottom to export their troublesome deflation to other countries.

Analysts Predictably Hiking Silver Price Forecasts

In the past week, French investment banking giant Societe Generale boosted its both short and longer term priced predictions for silver. They currently forecast silver prices averaging $18 for the remainder of 2016. They also believe bullion prices will peak in 2017 before leveling off in later years. All of these reasons make now as good a time as any to stock up on silver bullion in your retirement accounts while it can still be had relatively cheap compared to its big brother gold.

It is amazing to many people how the economy of Britain which makes up less than four percent of global GDP can roil world markets and potentially even derail the world economy itself. The overwhelming majority of individuals on the planet do not care what the U.K.’s trade ties with the remainder of the EU will look like years after Brexit. Yet the British choice to leave behind the European Union is aggravating several interrelated forces that were already threatening the world financial stability and strengthening gold prices in the process.

Lower Inflation a Threat

Global commodity supply and tepid demand have led to a glut among commodities, especially oil. Labor is also overly available as demonstrated by the higher unemployment plaguing many regions of the earth. This all comes amidst inflation that is consistently lower than two percent level which central banks find desirable. Brexit has only made these forces worse. Oil plunged 7.5% between the closes of Thursday and Monday on potential declines in worldwide demand over growing uncertainty.  Inflation that is too low actually discourages businesses and people from investing and spending and makes sovereign debt burdens heavier. The U.S. bond market now predicts yearly inflation of only 1.37% through 2026. Germany and Japan’s inflation expectations similarly show drops of .13 of a point and .10 of a point since the Breit referendum. All of these development are positive for gold prices, as uncertainty and lower competing interest rates underpin the safe haven metal.

More Negative Global Outlook

The U.S. dollar index has risen over 20% in the last two years. It is not gaining on the progress of the U.S. economy, but rather on a negative worldwide outlook. Economies in Europe, Japan, and developing markets still look incredibly weak more than five years after the end of the last financial crisis and Great Recession. This makes the U.S. look strong by comparison. The higher dollar creates problems for the U.S. though. American exports are more expensive and less competitive, harming the abilities of multinational American companies to sell products abroad and hurting U.S. growth prospects. Brexit is making this worse as the dollar has risen more than three percent from last Thursday. Though the British pound’s collapse is the main culprit, the euro and yen are similarly down.

Ineffective International Monetary Policy

The frustrating part is that the important global central banks have been trying with few results to fight these economically negative forces. Both the Bank of Japan and European Central Bank are busy pumping enormous amounts of money into their banks by purchasing assets. The Bank of England and Federal Reserve in the U.S. have held off on long anticipated interest rate increases to try to improve growth and reach higher inflation levels. All of this has been to no avail as Brexit results showed. Financial markets and experts are now looking for possible interest rate cuts instead of raises from both the Fed and BOE. The Bank of Japan and the ECB are already talking about even more quantitative easing programs in the coming weeks and months.

Continued Lower Interest Rates Demonstrate Fear Premium

Ten year Treasury bonds’ interest rates in the U.S. declined from 1.74% on Thursday to 1.44% by Monday’s close. Longer term interest rates like these are also on the decline throughout Europe and Britain. Switzerland, Germany, Denmark, and other European nations now have long term interest rates that are negative. Buying and holding these bonds guarantees the investors will lose money. This reflects more than just investors’ anticipation that central banks will continue to intervene. It centers on the fear premium where investors will park their money in any safe haven asset including ones that promise a loss. Gold has no negative interest rate as part of its absence of yield, making it more attractive than these negative rate bonds.

Weaker Growth Underpins All of these Problems

The ultimate factor that has contributed to all of these other problems is that global growth is now substantially weaker than before the 2007/2008 financial crisis and Great Recession. Nearly ten years after the crisis began Europe has only now attained its 2007 economic output levels. Japan continues to slide in and out of recession. Chinese growth is slowing while Brazil is mired in recession. The U.S. and Britain may be outperforming, but this is only measured against the lower standards that have been set since the 2000’s. The Brexit vote looks likely to decrease the unimpressive growth around Europe and the rest of the world even more. The longer the uncertainty around European trade ties and the British economic future goes on, the worse this will get.

Britain Suffers from Double Sovereign Credit Downgrades While Gold Forecasts Rise

The S&P took the unprecedented step of cutting the British AAA credit rating by two notches at once in the wake of the Brexit vote chaos that has unfolded. Fitch also downgraded their credit rating and outlook for Britain on Monday. All of this is good for gold’s outlook and has already been reflected in several prominent investment banks increasing their gold price forecasts. Morgan Stanley has increased its 2016 price predictions by eight percent and 2017 targets by thirteen percent. Goldman boosted the three, six, and 12 month price targets by $100 per ounce in light of the continued flight to safe haven assets that is ongoing.

This week’s Brexit vote has once again reminded everyone that the ultimate safe haven gold always has a place in your retirement portfolio and general investment holdings. The closeness of the polls only a few days in advance of the vote has investors and markets on both sides of the Atlantic on edge. In fact there have been five other Brexit like events over the last forty years that have massively boosted gold’s appeal and prices.

Brexit’s Potential Cascading Effect on the EU

You have probably heard plenty of doom and gloom prognostications on what will happen to the British markets and economy if they vote to leave the EU on Thursday. Billionaire hedge fund manager George Soros has predicted that the British pound will immediately drop between 15-20%, UK stock markets will be roiled, and Britons will be significantly poorer starting in the following days. You may not have heard as much about the potential knock on effects for the European Union. If Britain votes to leave the world’s largest economic block and market, it will set a dangerous precedent for the rest of the group. Analysts are already warning about the possibilities for a disintegration of the EU as the countries that remain attempt to change their relationships with the super-state in Brussels. Others may hold their own exit referendums as well. Frank-Walter Steinmeier the German Foreign Minister suggested last week that the integration which took decades to accomplish could quickly unravel into disintegration. This could happen despite mutual pledges from the other EU countries to keep banding together. Whether the contagion spreads so badly as this or not, a pro-exit vote from the British would certainly be bullish for gold.

Lehman Brothers Bankruptcy of 2008

Most people still remember the tumultuous days surrounding the announcement of investment banking giant Lehman Brothers going bankrupt in 2008 at the height of the global financial crisis. Gold traders must have felt something happening, as the prices before the Lehman Brothers collapse were volatile. On the announcement that they had collapsed, everyone understood that the greatest financial crisis since that of the Great Depression had suddenly erupted. It soon became clear that insurance giant AIG, investment banks Merrill Lynch and Bear Stearns, and enormous national bank Washington Mutual were going to have to be bought out or backstopped by the government in order not to fail as well. In only a week following the Lehman bankruptcy, gold prices skyrocketed by more than 11%. Lehman creditors and investors only recovered a portion of their money years later.

Twin Towers 9/11 Attacks of 2001

You will never forget the 9/11 attacks for their moving imagery of the two World Trade Center towers collapsing after the hijacked airplanes crashed into them. Over 3,000 people died in the buildings’ catastrophic demise. Once it came out that Al-Qaeda the global terrorist organization was behind it, it became clear that a new worldwide war on terror would result. COMEX Gold and all U.S. financial markets were shut down in the wake of the attack. Gold roared 6% in London trading from the morning to the afternoon of September 11th, 2001. The safe haven metal never since looked back at the London morning prices of $271 per ounce.

Exchange Rate Mechanism Crisis of 1992

George Soros knows a thing or two about catastrophic declines in the British pound. Throughout 1992 he and his Quantum hedge fund bet heavily against the Bank of England being able to hold the high levels of the pound’s exchange rate. Britain was a part of the European Exchange Rate mechanism, the predecessor to the Euro at the time. Eventually by September, Soros and his investors prevailed as the U.K. could not afford to keep supporting the pound. The country had to leave the European ERM as a result and to devalue the pound by 15%.  This became known as Black Wednesday. Gold began to run up and its prices increased by 50% over the following two years.

Black Monday Stock Market Crash of 1987

The greatest stock market crash since the ones of the Great Depression proved to be the Black Monday crash of October 19, 1987. Stock markets around the globe plummeted starting in Hong Kong, then moved West to European markets before crushing the U.S. markets. Interestingly this crash did not originate in the U.S., and American exchanges only tanked after other global markets had declined significantly. When the dust had settled at the closing bell, the Dow Jones had fallen by 508 points, representing 22.6%, to 1,738. Gold shot up and notched a 7.9% increase in only that week.

Oil Crisis and Yom Kippur War of 1973

In 1973, both Syria and Egypt attacked lands that Israel held. This began the Yom Kippur War that saw America eventually intervene to send Israel military hardware and much needed supplies. The Arab world responded by cutting off oil shipments to the U.S. and its allies. In the week after the beginning of the Yom Kippur War, gold prices rose by 3.7%.

In Conclusion

There will always be situations in the world that recommend you hold gold in your portfolio. Whatever happens with the Brexit vote, the next financial or geopolitical crisis is only a matter of time. These five gold moving events should strengthen your resolve to acquire and hold more of the yellow metal as you are able.

After months of the media talking about it, the much vaunted Brexit vote has finally arrived. One week from today on June 23rd the people of Britain will go to the polls to decide their collective future. With all of the latest polls showing that a leave vote leads the way, this financially destabilizing event could actually happen. Gold has already popped back up over $1,300 per ounce on the increasing possibility of this occurring. It is important for you to understand more about this possibility that could have ramifications for markets around the world and your portfolio. Geopolitical events such as this one are always out there.

What is Brexit?

Brexit refers to the historic decision that the British people have been given to vote on whether to stay in the European Union or whether to leave it. Prime Minister David Cameron promised that if he was reelected in the last election, he would give the citizens of the U.K. their say on their future. Cameron had suggested the referendum originally because the British harbored long term unhappiness with the direction of the European Union. Fears and worries about unchecked immigration have only made this worse in recent years and especially months. Cameron figured he could not ignore such strong sentiment. It had already threatened to split apart his own ruling conservative party. He decided his best opportunity to reduce the tensions was to renegotiate their deal with the European Union and then give the voters their chance to vote on the deal.

Instead what has happened is that the deal he brought back from the much heralded renegotiations turned out to be short on substance. Few people in the country are satisfied with the new terms and supposed changes to the EU that he had promised. The vote will come down to how many people are afraid of Cameron and other world leader’s threats and warnings about a potentially devastating recession if they leave the enormous economic and trading block.

Why Brexit Matters

Brexit matters to much more than just the people of Britain or even those of the overall European Union. There are several reasons for this. Britain is more than just the fifth largest economy in the world. It is the world banking and insurance center and forex and precious metals hub. Over 20% of global banking transactions begin, pass through, or end in London. London is the world’s largest Forex market center by far. British stock markets are among the biggest in the world as well. Instability in British financial markets means global financial instability. There could easily be contagion to European financial markets and potential chaos in other country’s markets as well. Federal Reserve Chair Janet Yellen emphasized this herself in her explanation Wednesday for not raising interest rates. As Senior Metals and Mining Analyst Ken Hoffman of Bloomberg Intelligence recently put it, a vote for Brexit would be a real shock to the financial system.

What Brexit Means for Gold

The latest polls have all shown that the British voters will choose to leave the European Union next week.  The TNS Poll showed that 47% favored leave versus 40% for remain. Four other polls have demonstrated similar one to seven point leads for the leave camp. Gold prices have already taken notice as traders of the yellow metal are placing their bets on it being quite a bit more valuable at the end of next week. An actual vote to leave could move gold prices even higher according to recent investor surveys. Bloomberg asked 22 analysts and traders what a vote in favor of the Brexit will mean for gold prices. They responded that gold would reach at least $1,350 per ounce in less than a week of the vote. With gold prices above $1,300 already, this is now only three percent higher than recent levels. The same traders believe that if the majority opt to stay in the European Union block, prices could decline to $1,250. Either way, the vote is going to move the precious metal prices.

Gold price gains over the prior two weeks demonstrate the impacts that rising fervor for breaking up the EU are having so far. Gold backed exchange traded funds already reflect increased demand for gold as their assets have risen to the greatest levels since 2013. This is because if Britain leaves, it will create ongoing uncertainty about when the exit will occur and how it will transpire. The separation could take as long as two years to finish. There is more than just the uncertainty about what happens to Britain and their international markets at stake. If the British lead the way to the exit doors, other European countries whose citizens are also unhappy with the EU may vote to follow suit. One analyst Jeffrey Rhodes of Dubai’s Zee Gold DMCC has suggested that a Brexit could cause enough of a global financial market deterioration and panic that gold reaches upwards of $1,600 per ounce.

In Conclusion

Even if Brexit does not take Britain out of the EU next week, there will still be plenty of other geopolitical events in the world supporting gold. Interest rates remain negative in both Europe and Japan, Greece is again teetering on the verge of possible Grexit, and the most unpredictable U.S. presidential campaign in memory promises to be another destabilizing factor. This is why the world will always give you ample motivation to keep gold in your retirement portfolio and holdings.

The financial crisis that began in  2008 taught central banks and investors some important lessons. One of these was that gold is more relevant today than ever before. Since those chaotic economic times, governments and regulators have shown great determination to stop those dark days from returning. Countless regulations and new rules have been created to shore up the balance sheets of banks. Financial policymakers have attempted to increase their nation’s economic growth. They have used unconventional policies like historically low interest rates and quantitative easing in an effort to do this. All of these have been good reasons to buy and hold gold.

Now a major former central bank governor has thrown his weight behind central banks counting gold in their reserves. Long time Bank of England Governor Lord Mervyn King served as head of the British  central bank from 2003 to 2013. In an interview he recently gave to the World Gold Council’s Gold Investor publication, King discussed his concerns about the rising threats of more global instability. As part of these comments he made, he specifically mentioned that gold has an important role it can play in the official reserves of central banks. For a variety of reasons that range from diversification away from U.S. dollars, to concerns about runaway inflation, to fears of global instability, King talks up gold as a backstop for nations. What is good enough for the great central banks of world is also smart for you.

Diversification Encourages Central Banks To Keep Gold

With market conditions the way they are today, Lord King stated that he gets China’s motivation in keeping gold as a significant part of its reserves. The Chinese central bank does not want to have all of its foreign reserves in the bonds of the U.S. government. While King believes it is not likely that the U.S. government would default on its debt, he mentioned that nothing in the world is certain.

“Over the last decade or so, the claims by some emerging market countries on the US have grown. Who knows what the future holds, but China and other countries do not want to be in a situation where all their international assets are in effect dependent on the US. Of course the US would not want to renege on its debts, but if some awful conflagration occurred, then all China’s assets in the US might be annulled. So there are plenty of big concerns that make it extremely reasonable to have assets in your portfolio that are not dependent on the goodwill of other countries,” King said.

Diversification away from the U.S. bonds and dollar is the answer. King went on to say that he understands the Chinese desire to diversify away from dollars and into gold. Thanks to all of the real concerns in the world today and with U.S. debt levels at astronomical and growing levels, it is more than reasonable to maintain a portfolio with assets which do not depend on the solvency or even good will of countries including the United States. Individual investors are also smart to look at the world and their gold holdings through this premise.

Inflation Motivates Central Banks To Hold Gold

King did not stop his arguments for gold with just China and diversification reasons. He also maintained that it makes sense for other emerging market countries to build up their gold reserves. This will protect them against the dangers of growing inflation and hyperinflation threats. In this respect, he fully understands that gold has a part to play as a hedge against inflation. Though some might claim otherwise, hyperinflation has not become a historical footnote. King pointed out that the second largest hyper inflation of all time happened in Zimbabwe this century.

King remarked, “It’s still early days to conclude that around the world, governments have found the solution to maintaining price stability with a managed paper currency. I can understand why holding gold would seem to be a sensible part of a national portfolio. Because there is clearly a need to take some precautions against an unknowable future.”

Inflation is a threat for any country whose central banks pursue limitless money printing and currency debasing policies. Gold represents the ultimate hedge against inflation and runaway government debt both. This helps to explain why so many countries have added gold to their reserves over the last decade.

Global Instability Argues For Holding Gold

One of the main points of King’s talk was that global instability has not been solved despite eight years of central bank actions and interventions. Now he believes that these actions have run their course. It is interesting that King is effectively disavowing further ultra loose monetary policies as he was among the architects and chief proponents of them following the financial crisis of 2008. King admitted that the quantitative easing and historically low interest rates that he advocated have become less and less effective and are now creating more of the instability which they were intended to prevent. At the time, he and others felt that it was the only means they had for rapidly increasing liquidity into the markets.

Regarding holding gold against instability, King mentioned, “Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.”

It is also a good reason for you to keep gold in your own personal investment portfolio.

As gold prices continue to pull back in the wake of higher interest rate talk from Janet Yellen and company at the Fed, you would expect some investors might use this as an excuse to cut their yellow metal positions and run.  The truth is that certain gold positions have been liquidated in recent weeks while other types have seen an increase in their totals. This is where it becomes important to understand the  different kinds of gold assets. Paper gold and gold backed holdings are two of the main categories. They have diverged sharply since the pullback started in May.

What is Paper Gold?

Paper gold is simply described as a position where a the investor owns a piece of paper. In this case we are not talking about a claim on gold, but a holding that merely trades with the price of gold. There is no gold backing up this asset. Another way to put it is that you do not own gold when you have paper gold. In fact you do not have even a promise to obtain physical gold. This makes you a creditor to the group that is providing paper gold accounts or certificates. As a creditor, you take on the various substantial risks of the company failing and filing for bankruptcy. You also become a victim of counter-party risks.

Different types of investors have an interest in paper gold than those who buy products which at least are gold backed. Speculators on short term price movements tend to be most interested in paper gold. This would include hedge funds and other short term players. Physical gold and gold backed positions by contrast attract longer term investors in the precious metal. These are individuals and groups who believe in the long term value of gold as inflation hedge, increasing store of value, and position of security.

Paper gold examples abound, though some individuals who trade them may not realize they are not involved with actual gold backed positions. These include:

• Gold Futures Accounts and Contracts

• Bank or Mint Issued Gold Certificates

• Gold Pool Accounts

• Passbook Gold Accounts

Paper gold serves a function. It does provide gold spot price short term exposure. It does not help you if the party issuing it fails or if the demand for the product declines or disappears. This is because these types of paper gold do not give you the ability to exchange the position for gold bullion, only to sell the paper back. Physical gold and gold backed holdings do not go bankrupt and have no dependence on other organizations keeping their obligations. This is what makes these physical gold holdings superior for anyone interested in any type of position that is longer than a very short time frame.

Physical Backed Gold Stronger than Paper Gold in May

It is an added strength of the physical gold holdings such as the gold backed ETFs that their investors have maintained and added to their positions at the same time that gold prices have pulled back substantially in May. During this time, the speculators have rapidly shed their positions in the paper gold market by over $7 billion. Yet over roughly the same period of time, gold backed position investors have added substantially to their net positions. Since the beginning of May for example, the GLD SPDR Gold Shares have increased their gold reserves to back up additional shares by an impressive 43.72 tons. This represents the largest such boost since back in January.

Even with the media hammering every day about the rising likelihood of a Fed rate increase and gold prices retracing, there have been additions into the various physical gold Exchange Traded Products for each trading day of the first 20 days in May. During that time, purchases by the physical gold backed ETPs have totaled 86.2 tons. These levels are similar to the purchases their investors made in March when gold prices were still rising impressively and compare strongly to the 5.6 tons of gold they bought in April.

In Conclusion

The fact that longer term gold investors have not been spooked by gold price retracements is significant. While speculators are out or headed for the exit doors, those gold investors who believe in the cass for the metal are both buying and holding. It speaks to the strength and superiority of gold backed products like GLD and the other physical ETPs. The ETP investors consider all of the present weakness to be a temporary correction. They are utilizing the price dips as chances to buy more. This is why ABN Amro’s Coordinator for Precious Metals Strategy Georgette Boele believes that the 200 day moving average at $1,163 per ounce will hold. She and the Dutch banking and investing giant also maintains their year end price target for gold at $1,370 per ounce. That is significant motivation for the longer term investors to keep holding on to their gold.

If you have been watching the fluctuations in gold prices the last few days and weeks, it may have discouraged you. After the best first quarter runup  in the yellow metal in over thirty years, it has begun to retrace a significant part of these gains. This can easily lead you to the conclusion that you should sell now while you still have these short term profits. It is easy to forget that the gold you acquire in your retirement account is supposed to be a long term holding, especially when gold undergoes a correction. The most important thing regarding your long term gold holdings is to not allow these volatile ups and downs to cause you to engage in panic gold selling. The fundamentals of gold are still solid.

Canadian GDP Takes Significant Hit From Wildfires and Resulting Oil Production Slowdown

Instability and troubling geopolitical events in the world are among the reasons that you put gold in your retirement accounts in the first place. These have not changed despite gold prices pulling back. The Bank of Canada just had its monetary policy meeting and brought up some of the reasons that it is not raising interest rates now. The devastating wildfires running through Northern Alberta have led to lasting economic weakness in the country. Because of the cessation of oil production in this key energy producing region of Alberta, Canada, an incredible one and one quarter percentage points have been cut from the second quarter real GDP growth. There has been much destruction from the fire that will take months or more to address. These tragic events not only support oil prices, but also underpin gold as well.

Gold Long Term Weakness Likely Limited to $1,200 Per Ounce

Gold has shown weakness lately because of a few factors. The U.S. Federal Reserve officials have been making the rounds talking up the likelihood of interest rate hikes in the coming months and into next year. This has driven the yields of 10 year Treasuries up and promoted a stronger U.S. dollar as well. For the moment, several of the hot spots to watch in Europe have cooled with polls demonstrating that Britain is less likely to leave the European Union and Greece receiving approval for another batch of financial aid to its crumbling economy.

Gold is nearing a significant support point in the hundred day moving average at $1,213 per ounce. Below this lies the psychologically important $1,200 price point that has been seen as a chance to buy the yellow metal on sale. Commerzbank recently suggested that gold will survive tests of $1,200 per ounce on discount buying opportunities. They do expect it will test the level on at least one occasion, but not to fall convincingly or permanently below this point with a number of parties looking for an opportunity to buy in  at a better price. Other analysts have pointed out that gold remains in an uptrend even below $1,200 per ounce. Saxo Bank Head of Commodity Strategy Ole Hansen recently pointed out that gold is still in its uptrend all the way down to $1,175 per ounce. This $1,175 level is an important 50% Fibonacci retracement point in the price range from a $1,046 low to the recent $1,303 high.

Chinese Investors Buying Gold at On Sale Prices

Buying data from MKS in Switzerland shows that the Chinese investors are already beginning to step in and take advantage of lower gold prices. Their Senior Precious Metals Trader Alex Thorndike has noted that the Chinese are gladly making the most of lower prices. In mainland China, they are even paying as much as $2 to $3 per ounce over Hong Kong spot prices to be able to pick up gold ounces at these reduced global prices.

Gold Demand Flowing from East to West For A Change

Commerzbank has also noted that gold flows have temporarily shifted out of their trend of mostly going to Eastern countries. Switzerland customs data shows that the country’s gold exports rose to 147.8 tons in April. This represents its highest levels in three months. For now, just under a third of the Swiss gold export total moved out to typical consuming customers India, China, and Hong Kong. Instead about half of all gold exports, representing a net of 75 tons, went to the United Kingdom. Analysts have pointed out that this is not likely to last. The lower prices should soon be seen as fantastic buying opportunities for the consumers in these three key Asian gold markets. Asian demand has long been a bedrock and support for gold buying and prices. Their love affair with the safe haven metal has not changed.

In Conclusion

Gold prices move up and down. In May they have pulled back over $80 from their first quarter more than $200 per ounce rally. Instability and economic troubles in the world have not changed. Demand for the yellow metal as a safe haven and protection against central bank policies that will lead to inflation will always be present. Part of holding gold long term in retirement accounts means you have to learn to ignore the temporary sometimes wild price swings along the ride.