Protection from default risk
How cash and gold compare
Another risk to savers is default by banks and governments. The risk of banks or countries not being able to pay their obligations is a risk we should consider in today’s heavily indebted financial system. How do gold bullion bars and cash compare in their exposure to default risks?
When you have cash in the bank you are exposed to two main forms of default. You are exposed to the institution you bank with, and the government who manages the currency you save in. It is this dependence on highly leveraged banks and heavily indebted governments that concerns savers and investors. If your bank goes bust or the government behind your money defaults, the value of your savings can disappear faster than you can react and protect yourself.
Saving in allocated gold bullion is different, in that there is no default risk. The value of your gold bullion investments can never go to zero, and is not derived from any company or government’s financial performance. In a world where traditional investments and currencies are increasingly questioned, this is why buying gold is so different to other savings.
Granted gold pays no yield, but it is its counterparty free nature makes it an ideal savings mechanism. Gold is the King of monetary assets and offers unique protection against defaults.