Last week, I argued that central bankers are now more powerful than our elected politicians. And it’s pretty clear that these central bankers will do anything they can to save the powerful banking system.
I could have said “they’ll do anything within their powers” but it’s now obvious they’ll just change their powers if necessary.
We’ve already seen central bankers and the powerful IMF practically bust Ireland, Portugal and Greece in their efforts to save the banking system. In the US, they used something called the ‘Troubled Asset Relief Program’ (TARP), which is tantamount to money printing.
Each time the economic crisis deepens, the central banks take on more power and more debt. And as they do, they sow the seeds for the next phase of the collapse.
Today, I want to look at how to protect yourself from an increasingly powerful banking system that has gone mad.
Gold isn’t enough
On Friday, I said that I was surprised gold hadn’t already smashed through its all time high of $1,575. Well, as I write, that’s exactly where it is.
And this marks a new phase for gold. Given that quantitative easing (QE) has now run its course, many pundits were expecting gold to come off the boil. But it hasn’t. This puts paid to the idea that the gold bull is simply down to QE inspired speculation. There’s more to it than that.
Gold is being bought to protect wealth against the misuse of power by the central banks. But as the economic authorities change and bend the rules, they may come after your gold. Many people I speak to are worried about gold confiscation by the authorities.
If it comes to it, the authorities may say something like “gold speculators are trying to bring down the financial system”. They’ll say they need to bring the speculators to heel and force holders to sell their gold back to the central banks.
What’s the point in holding gold as the ultimate insurance if, when the worst comes to the worst, you’re forced back into faltering paper currency?
Two ways to diversify your gold holdings
As with all investment, the key here is to diversify your holdings. You can do that in two ways. First, you can use different types of vehicle. You can buy gold mining stocks, exchange-traded funds (ETFs), spread bets or physical gold for instance.
Secondly, you can diversify where you hold your gold. Geographic diversification is just as important as the vehicle you use. That’s because different jurisdictions may deal with ‘speculators’ differently.
And today there are no excuses. You can diversify your holdings without even leaving the comfort of your own home.
You can buy gold bullion all over the world. The Perth Mint Certificate Programme is a government backed precious metal certificate programme. They store physical gold in their vaults in Australia and issue you a certificate for your holding.
Similarly, you could use BullionVault.com where you can buy gold stored in London, New York, or Zurich. They’ve had very good reviews in the press and look like a great way to get exposure. I have to confess, I haven’t used them. I’ve taken to organising my own vault.
I prefer to buy gold coins and store them in a personal safety box. In the event of gold ‘confiscation’, it may be that the authorities focus on bullion. Private collections of coins are less likely to attract their interest.
Krugerrands and gold sovereigns are easy to buy from bullion dealers. Once you’ve got them, you can keep them at home (make sure you tell your insurer), or you can get a safety deposit box.
I pay around £130 a year for a box in London. In it, I stash coins (silver and gold) as well as any other important documents I’ve got.
Spread your gold around
Another great diversifier is gold stocks. You can diversify your holdings geographically and into different legal jurisdictions (depending on which exchange your stock trades).
Last week, Dominic Frisby, our gold guru, issued a brand new report. In it, he identifies his favourite five gold stocks to hold now. Apart from anything else, it’s a great read. I’d get hold of a copy and take action because these stocks could follow the gold price up.
For the moment, I’m still holding ‘paper gold’ through ETFs and spread bets. But as time goes on, I’m gradually converting these holdings into physical coins.
At some point, I may have to get a bigger safety box!
The global feds are clearly intent on saving the banks. As things develop (or should I say break down), it’s looking more important to take control of your gold.
For me, that’s gold stocks and physical coins. If you want to stay in paper, then just make sure you’re diversified.
And do have a look of Dominic’s cracking gold report – it’s a great way to diversify your gold holdings.
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
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