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Guest post: Is gold the answer to Europe’s worst-case scenario

When a central bank decides to buy gold there is a fair amount of chatter as to why they’ve decided to do so, with many suggesting that it shows some concern as to how foreign currencies are being managed and are preparing for the worst. Here at The Real Asset Company we often say (after Jim Sinclair) ‘be your own central bank’, if central banks are choosing to invest in gold, why shouldn’t you? Below, Lawrie Williams explains why, given the relentless financial crisis we too should be prepared for some significant changes by stocking up with gold.

Having seen the Arab Spring develop and come to a head over the past couple of years, should European countries be worried that some of the same factors, and consequences, could rear their heads closer to home?

With governments seemingly increasingly out of touch with the person in the street, and with the public’s growing distrust of politicians and their attempts to right the financial mismanagement of their predecessors, could rioting on the streets develop into full blown insurrection?

Some Western democracies are indeed in a parlous state. Take Spain for example. The unemployment rate among the under-24 year olds is somewhere between 50 and 60%. In Greece that figure is at a similar level.

In both countries the overall unemployment rate is estimated at over 26% and rising, and government generated statistics are frequently shown to understate the true position.

How long can this go on before something snaps? There is still seemingly no end in sight to the economic weakness and one only has to look at charts of the rise in unemployment across Europe (albeit with a few exceptions of which, surprisingly, the UK is one) to see that the situation is becoming progressively worse.

Portugal’s youth unemployment rate is knocking on 40% as is Ireland’s. In Italy the youth unemployment rate is 37% and rising and similar levels are present in the Baltic states.  Even in France it is over 25% and growing fast.

Should the resultant powder keg ignite in one of the Eurozone nations, a thread of serious trouble could unravel across the whole of the EU.

The danger is that semi-violent protest, put down by over-zealous paramilitary police forces and army units, could see such dissent moving to riot and worse, with government backed violence met by civil violence escalating to who knows what.  That was to an extent the pattern in Egypt, Tunisia, Libya and very particularly in Syria and, while western democracies may not suffer from the autocratic rulers prepared to escalate state violence to totally disproportionate levels, the potential remains for current dissent to move to something much more serious.

Western democracies are not immune to the threat, to which  their various histories over the last 100 years will attest, but one hopes that the general improvements in living standards across the board will ward of the likelihood of such an eventuality coming about.

However, should a partial, or full scale, insurrection develop in one of the Euro nations, the first targets will undoubtedly be the government and the banks, the latter increasingly being seen as being at the root of current economic problems.

And, if the banks are seen as likely to be attacked the resultant nervousness of those with money – the haves – will precipitate a flight to what are seen as safe haven forms of wealth preservation – and, of these, gold would likely be the principal beneficiary against, not only bank collapse, but also against the accompanying financial meltdown.

Now to those of us used to democratic stability all this may seem a hugely unlikely occurrence, but revolution, if it comes, tends to be supported primarily by the young, egged on by more mature agitators.

And, importantly it can develop extremely quickly.  One only has to look at the 2011 London riots where the flashpoint was the shooting of a young black man by police.

The riots developed so rapidly that several areas of the UK’s capital city were quickly outside police control for three or four days.

If such a small individual event, however traumatic it may have been for the family of the young man killed, can trigger this kind of response, imagine what a concerted agitation could do in a country where more than half the under 24 year olds are out of work, see no prospect of employment ahead, and within a perhaps even more volatile community.  All the triggers are there for a major breakdown of public order.

As we noted above, such a breakdown can escalate – and spread across borders.  The London riots led to sporadic outbursts in other cities in the UK.  An insurrection say in Greece could easily lead to similar events in other countries, much as the Arab Spring has spread from country to country.

One takes out insurance not in the hope that one’s house burns down or you are going to crash your car, but rather, to protect yourself financially against such an eventuality occurring.  Similarly it would seem prudent to perhaps put some of one’s investments in gold, or perhaps silver, as just such a protection against something which could lead to financial collapse in the country in which you are domiciled and hold your wealth, not because you actually expect it to happen.

Gold has proven itself over the centuries as providing this kind of protection of value so everyone almost certainly should hold a proportion of their savings in precious metals.

That’s what safe haven investing is all about – protection against even the perhaps unlikely occurring.  But in gold, unlike most paper insurance policies, the likelihood is that at least you not only protect yourself against financial collapse brought on by events totally outside your control, but even if these don’t happen you should still retain the value of your gold investment, or even find it has increased, given gold’s record of at least holding its own against currencies.

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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.

About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles