Should We Prepare for the Worst and Save Gold?

As the Covid-19 pandemic has shown, it is worth preparing better for a possible crisis. Does that mean keeping some gold in your pocket works? Investment consultant Arkadiusz Sieroń seeks an answer to this question in his own unique way. we too cryptocoin.com We present it to our readers.

“Owning gold is part of preparing for the worst”

I have to admit something. I always laughed at the preparers, the people who spent their entire lives stockpiling beans and ammo to prepare for unlikely doomsday scenarios. Come on, who takes these freaks seriously? In fact, as the pandemic and supply crisis has shown us, we all should.

When most people struggled to find masks and hand sanitizer, the makers laughed. When most people fought epic battles over toilet paper and something to eat to survive the Great Lockdown, the preparers laughed. When most people were faced with rising inflation and shortages in supply of different products, the preparers laughed. When most people panicked when they heard of power cuts, the preparers laughed. After all, it seems like sarcastic preparers have the last laugh.

Therefore, the Covid-19 epidemic revealed that the world is not a paradise flowing with milk and honey, that there are really bad things, so we need to be more prepared for possible disasters, even though they seem like remote possibilities. For example, experts are now drawing attention to the threat of cyberattacks, and just last month the Kazakhstan government shut down the nationwide internet and denied its citizens access to their bank accounts.

The problem is that it doesn’t always seem very likely until crises occur. Meanwhile, historical cases seem so distant and abstract to us, and we tend to think “this time is different” or “we will somehow get through it”. Maybe you will, but it’s much easier when you’re ready. You don’t do it when other people panic because you’ve prepared and you have a clear plan of action.

You see, the question is not whether the crisis came, but when. It’s only a matter of time, even the government proposes to store at least a few days’ supply of nonperishable food. But the problem is, people don’t think about getting ready when things are going well. Why worry and spoil the fun? Let’s drink like tomorrow will never come! Maybe the problem will somehow go away on its own and if it doesn’t, we’ll deal with it later.

I get it, but how does it all have to do with gold? It’s pretty simple. Owning gold is part of preparing for the worst. This is because gold is a store of value that gains in value when confidence in fiat money wanes. It is also a shining safe-haven asset during financial crises when asset prices have generally plummeted. The best example would be the Great Recession or the 2020 economic crisis, where gold outperformed the S&P 500 Index as the chart below shows.

How much should gold be in the portfolio?

You can also think of gold as a portfolio insurance policy or a hedge against tail risks. A home fire is unlikely, but it’s usually wise to have insurance just in case. Similarly, the collapse of financial markets and the massive plunge in asset prices are not likely (although the Great Depression of late 2008 and early 2020 clearly showed these to be possible), but it’s nice to have a portfolio diversifier that isn’t afraid of black swans.

In a way, it all boils down to individual responsibility. Do you take responsibility for your life and to be prepared for different scenarios, or do you rely on other people, the government or just luck, do you magically think that everything will always go well? To be clear, being prepared does not mean being pessimistic. It’s more about being realistic and hoping for the best, but planning for the worst.

However, there are two important caveats to consider before replacing all your paper currency with gold coins. First, you should not confuse holding gold as insurance with gold as an investment asset. When you want protection, you are not interested in price trends. There may be a bear market, but gold will still fulfill its hedging role. Therefore, you should not own more than about 5-10% of your entire portfolio in precious metals. You can invest more in gold as insurance, as an investment or as part of your trading strategy.

Second, do not see gold as a panacea for all possible disasters. It all depends on what you are prepared for. If you expect a power outage, buy batteries, power banks and think about alternative energy sources. Precious metals do not power your home. If you’re afraid of a zombie apocalypse (who wouldn’t?), flamethrowers and rifles seem like better weapons than gold bars (but big ones can serve quite well). In such a post-apocalyptic world, it is likely that people will initially return to a commodity-based standard rather than a gold standard. It all depends on the specific conditions and how deep civilization goes.

Therefore, do not be afraid of dangerous people and false advertising to buy gold due to imminent hyperinflation, the complete collapse of the financial system, the nuclear greetings of Kim Jong-Un or some other disaster. The role of gold is not to save you from all kinds of troubles, but to be an insurance that pays off in economic crises.

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