Tags: Mikhailovich | buy | gold

Mikhailovich: Be Safe — Buy Physical Gold and Stash It

Sunday, 03 Jun 2012 12:26 PM

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The U.S. and other major economies remain constantly at risk of suffering another 2008-style financial collapse, and that makes stashing physical gold as one of the safest investments around, says Eidesis Capital's Simon Mikhailovich.

The U.S. is trying to pay down its massive debts, but politicians tend to put off politically painful spending cuts associated with deleveraging until disaster strikes, making the streamlining process slow and ongoing.

Meanwhile, markets are more interconnected than ever and have grown increasingly complex in terms of technology and dependence upon murky financial derivatives.

Editor's Note: Google Banned This Video But You Can Watch it Here

Therefore, when one area of the global financial system collapses, the rest of the world will follow suit.

"Too big to fail is now too bigger to fail. Northern European countries have been trying to figure out how to bail out Southern European countries, which increases their interdependence. The Federal Reserve is opening credit lines to the European Central Bank, and essentially supporting the ECB and providing liquidity to the European banks. Rather than enable a quick but extremely painful deleveraging, Western governments are trying to delay it by borrowing significant amounts to supplement economic activity," Mikhailovich tells Barron's.

Amid such a scenario, investors need to rethink their old ways of buying one set of stocks and bonds to hedge against another, as all securities have become so correlated that when financial crisis hits, the whole portfolio can tank.

Gold bullion stashed in vaults outside of traditional banking systems and in different parts of the world should serve as a reserve asset of choice in case of financial emergency.

"The price of gold never rises. It is the value of financial assets that declines. Gold is a store of value. Gold is not an investment. However, in the current environment, gold can produce tremendous real returns because it's an asset that doesn't produce any cash flow," Mikhailovich says.

This risk of another Lehman-style crisis remains a constant threat.
"It's just a matter of time. This financial system is completely unsustainable. The level of interconnectedness, the level of misapplied incentives is again unprecedented in history," Mikhailovich says.

"If you were offered a game of chance where when you win, you win, and when you lose, you are given another chance to throw the dice, then, of course, everybody would play that game and essentially that is where the financial system is. That isn't capitalism. That creates distortions, misallocation of capital, and mismanagement of risk, and we are seeing it time and time again."

Gold serves as a hedge to paper currencies, and loose monetary policies and hefty government spending have sent the dollar falling in recent years.
Other currencies like the euro have suffered similar fates.

The yellow metal has soared in past years, rising from below $300 an ounce just over a decade ago to over $1,920 an ounce in September of 2011 before arriving to around $1,625 today.

Other high-profile investors say gold is merely correcting today but remains moving along in a long-term bull market.

"Gold has gone up eleven years in a row and it is consolidating right now. I have not sold any gold, I still own my gold," famed international investor Jim Rogers tells Moneynews.TV.

"If it goes down, I hope I am smart enough to buy more, and I hope I am smart enough to buy more silver, because precious metals are going to make a lot of money for a lot of people in the next decade." 

Editor's Note: Google Banned This Video But You Can Watch it Here


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