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Gold Not A Safe Haven? Tell That to Folk in Ukraine, Gaza, Syria and Iraq

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Gold Not A Safe Haven? Tell That to Folk in Ukraine, South America, Middle East and Africa

It is important to remember that while gold and silver prices have been in lockdown and only eked out small gains so far in 2014 despite increasing risk - especially geopolitical - gold has seen very strong gains in many non major currencies.


Gold in Ukraine Hryvnia - YTD 2014 (Sharelynx)

This is especially the case in Ukraine where the currency has lost more than half of its value versus gold (see chart above and below). Gold in Ukraine Hrvynia is up 70% since the start of 2014. People who own gold in Ukraine would laugh at you, if you said that gold is not a safe haven.

People in Iraq, Iran, Syria, Gaza and elsewhere in the Middle East would also attest to how gold is a safe haven - both for refugees fleeing with portable wealth that is gold and for those who stay in country but see their currency devalued. As would people in Argentina (see chart below) and throughout many countries in South America and indeed Africa.

Reuters Interview GoldCore On Gold As Safe Haven

Mark O'Byrne, (Goldcore)
Hi Amanda and everybody in the forum

Amanda Cooper (Reuters News)
And it is time to welcome in our first guest of the day! Please welcome Mark O'Byrne, who is research director of GoldCore. Welcome back Mark!

Mark O'Byrne
Thanks for having me back on Amanda

Amanda Cooper
We said we'd talk about gold's role as a safe haven, particularly now when crisis after crisis, be that political, religious or even health related is blowing up. As you probably saw someone on Twitter said "please mention that s not the primary reason to own gold"

Is it still valid to talk about gold being a safe haven?

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Mark O'Byrne

Indeed I did ... lol ... so lets address the Twitter comment first. Geopolitical risk is not the primary reason to own gold. There I said it.

Macroeconomic, systemic and monetary risks are also good reasons to have an allocation to physical gold in a portfolio

Steven S
what is so safe about it?  it is not easily used in local commerce - if you are seen flashing it - you just may be mugged    and if you store with others it can be rehypothocated ad infinitum

Amanda Cooper
I'll make sure I tweet that  All right, in today's world, where the major central banks (some of them at least) are positioning to raise rates and you have the S&P seemingly going from record high to record high with barely more than a single-digit correction between peaks....why should you?

If you could tackle Steven's question first

Mark O'Byrne
Hi Steven, Its safe if it is owned in an allocated and segregated manner in a secure vault in safer jurisdictions in the world - such as CHF

Steven S
and when you need  access to do it? the only way to use it is to exchange it for paper…
farmland - you can grow food,  oil you can burn  - gold  well it sits there and you pay to store it

Mark O'Byrne
You pick up the phone or email and can have it delivered to your work or home address in 2 to 4 working days - but that is only in worst case scenarios.

Petri
in 1820 an ounce of gold could buy you a nice tailored suit.... in 2014 an ounce of gold can still buy you a nice tailored suit... it is a store of value, not a return generating investment. At least, that is my understanding

Amanda Cooper
Okay so if we're not talking about unholy hell being unleashed but more a general sense of unease....what would you say was the prime reason for keeping some gold in your portfolio, as opposed to allocating all that cash to bitcoins or the S&P or Greek debt?

Mark O'Byrne
Sorry I shoud qualify it is not absolutely safe - nothing is but significant body of academic research and history shows acts as hedging instrument and safe haven asset. At same time should only be an allocation in a portfolio of some 5% to 20%.

Amanda Cooper
So, back to my question. What's the prime benefit that such an allocation to gold would bring to a portfolio?

Mark O'Byrne
Is all about Diversification and not a Question of 'either or' regarding major assets.



Gold in Argentine Pesos - YTD 2014 (Sharelynx)


Greek debt is high risk and not a store of value. Bitcoin is interesting but too soon to see how will develop and whether will act as a store of value. Huge potential as a means of exchange and payment obviously.

Most people already own the S&P if they have diversified investment and pension portfolios with an allocation to equities. Indeed some may be overweight the S&P and equities in general after the huge run up we have seen in most indices. We think S&P and many indices are now significantly overvalued and we are due a significant correction ... and potentially a crash ... with October being the period of risk

Amanda Cooper
Ah I was being slightly facetious with those examples.  Can you talk to us a little about what kind of flows/demand youve seen from Goldcore's client base over this year?

On the S&P...thats what I just cant get my head around....no market is a one-way street, ever. Except that one!

Mark O'Byrne
Our general advice would be (and different for different investors depending on age, risk appetite, goals in life) have a diversified portfolio with significant allocations to equities (favouring small cap and emerging markets), and bonds ( AAA rated and short duration) and al allocation to physical gold and indeed silver

Steven S
gold drops quick $3 during this

Mark O'Byrne
Knew you were Amanda but still good food for thought

Amanda Cooper
So...who typically is buying gold at the moment? Do you have a broad profile you can talk to us about?

Mark O'Byrne
Hi Petri, Exactly it is a store of value and a form of financial insurance. It is an asset and not an investment as no yield

Hi Steven, Re your last point. Gold is highly liquid and you can sell it at anytime and buy lots of food, shop or shops, farm or farms, land, companies, stocks etc You have a very Amero - dollar centric view of gold. People in South America, Argentina, Eastern Europe and the Ukraine today and indeed people in Cyprus could tell you the value of gold. Those who owned it have protected and grown their wealth despite various crises


Gold in Ukraine Hryvnia - 2 Years (Sharelynx)


Amanda Cooper
Who is buying it now though? The euro zone has moved on from those very dark days in 2010/11/12 when its existence was at stake....and the US is recovering enough for the Fed to wind down QEnfinity....

Michael W
For me a main reason to have gold is a) I like the colour of the Krügerands  and b) I can store it in a safe place to have access whenever I may need it and without relying on a bank or even worse a government

Amanda Cooper
@Michael - I think with b) you have made @Mark's day

Mark O'Byrne
There is little buying of gold by retail public today as they have flocked to and are piling into stocks and property. JP Morgans or Joe Kennedy's shoe shine boy come to mind and this should give pause for concern.

Buyers of gold recently have primarily been central banks and particularly Russia (story there in itself) and institutions as seen in increase in ETF holdings recently.

Our clients are a mixture of mass affluent and HNW. Last 2 years we have seen rough 50/ 50 break down in buys to sells. From 2003 to 2011 we saw 95% buys. Only buying of coins and bars is from existing bullion owners who are concerned about the global geopolitical and economic situation and they are adding to allocations.

Amanda Cooper
That's very interesting about the buy/sell split and the shift by the retail public.

Russia buying gold..that's a trend that's been in place for a couple of years now. They're one of the biggest holders of gold now. What do you read into that? Does it have any relevance for current events?

Mark O'Byrne
Sentiment is very poor and as bad as we have seen it. This is industry wide - we know from our conversations with senior people in refineries, mints etc. This is actually quite bullish from a contrarian perspective. As we believe that once prices begin to move up again, there will be a significant uptick in buying from the very depressed levels of today.

Amanda Cooper
Well...yes it's not far off the point of reaching the cash cost/oz of a lot of the deeper, older ZA mines at least.

Steven S
I just don't see walking into a shop and trying to use gold of unknown and unproven origin...   mastercard, visa, works better    now if you had a gold backed credit/debit card  ... hmmmm  plus wages would ahve to paid in gold...

Michael W
@ Mark the worst sentiment I have ever seen for gold was in 1999 .....

Mark O'Byrne
Hi Michael, Yes is financial insurance against that rainy day. We all own car insurance and health insurance and gold is financial insurance that can be relied upon in difficult financial and economic times

Amanda Cooper
Gosh yes, 1999 was very grim.....until September that year anyway...

Mark O'Byrne
Very NB point re cash cost. Very little downside risk and significant update potential

Michael W
yep

Mark O'Byrne
Re eurozone and U.S. economies ...

Bill W
1999 ashanti

Michael W
yep, the Washington agreement changed it for gold and killed the insane hedging strategy Ashanti had in place

Mark O'Byrne
The Eurozone debt crisis is far from over and will rear its ugly head again alas. Events with ESP in Portugal in recent days are an indication of that. Politicians and bankers have managed to delay the inevitable day of reckoning by piling even more debt onto the backs of already struggling taxpayers. This will compound the problem and we believe make it worse in the long term.

Michael W
hedging being the wrong word for that strategy, gambling describes it more accurate

Jeanine P
GM, just quickly, US July retail sales unchanged, vs consensus of +0.2 pct and June +0.2 pct

Amanda Cooper
Mark youre the second guest we've had in GMF today - one of our Asia guests earlier said the same - that has issued a rather stark warning about the euro zone.

Thanks Jeanine!

Mark O'Byrne
Re the U.S. recovery - it is tentative at best. Even Yellen yesterday said that she was resolved to avoiding raising rates too soon and could lead to a recession

Amanda Cooper
We're about at the end of our time so before we go, perhaps you could leave us with a question to ponder?

Mark O'Byrne
This is not the sign of a recovering economy. The U.S. government is technically insolvent. At the start of the 'credit crisis' seven years ago, U.S. Federal debt was just $8.9 trillion. Today, U.S. federal debt stands at $17.66 trillion - nearly 100% higher and increasing rapidly. This does not include the $70 trillion to $100 trillion in unfunded liabilities for social security, medicare and medicaid.

Mark O'Byrne
Who put the figs into the fig rolls?

Amanda Cooper
Oh.....a riddle wrapped in a conundrum, deep-fried in an enigma!

Mark, you’ve been a fabulous guest. Thank you so much for your time today!

Mark O'Byrne
Been a pleasure. Thanks for all the questions and hope got them all. My typing skills still leave a lot to be desired. Thanks Amanda

Amanda Cooper
Absolutely not! Plus everyone here is so used to my awful typing, yours must have looked positively glowing by comparisong. Thanks again.

See?

Mark O'Byrne
“comparisong” ... yes sounds lilting ... u sing it and I will hum it

END

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Thu, 08/14/2014 - 17:26 | 5094290 Fix It Again Timmy
Fix It Again Timmy's picture

Gold does not always get you KILLED.  I met a woman who was a Vietnamese boat person.  Her grandmother paid for the family's boat trip with GOLD - the pirates were not accepting paper money....She is now a successful lawyer in DC...

Thu, 08/14/2014 - 15:56 | 5093792 Sheikh_Speare
Sheikh_Speare's picture

One must remember that the pieces of paper we know as money, were created to represent something that holds a real value, pieces of gold.

Thu, 08/14/2014 - 14:44 | 5093458 AdvancingTime
AdvancingTime's picture

Because of the uncertainty in today's market and the direction events might take the subject of "value and worth" continues to garner a fair amount of interest and remains relevant. History is chucked full of  distorted markets, debts unpaid, promises unfilled, and bubbles.

These "interesting times" play havoc with the value of things and what they are worth. Like some of the cruel games children play you don't want to find yourself without a chair or holding the "hot potato" when the game ends. More on this important subject in the article below.

http://brucewilds.blogspot.com/2014/05/value-and-worth-constantly-change...

 

Thu, 08/14/2014 - 14:31 | 5093373 besnook
besnook's picture

the unsafest thing about gold is the threat of confiscation by .gov. so far they have not confiscated gold jewelry, or gems for that matter, but the freest country in the world has already set the precedent for gold confiscation. in the new world of bailins, what makes you think your gold bullion and coins are safe? they aren't, boat accidents or not.

Thu, 08/14/2014 - 15:38 | 5093759 Jack4952
Jack4952's picture

Reply to Besnook:

I disagree with two of your statements: 1.) "the unsafest thing about gold is the threat of confiscation by gov" and 2.) "the freest country in the world [whish I presume you mean the United States] has already set the precedent for gold confiscation."

First, most governments do not have the personnel or resources to confiscate physical gold from the people, provided that people have NOT stored it is bank "safety-deposit boxes", etc. In most countries your physical gold, even as gold coins or bullion, need NOT be registered with the government either when purchasing or selling - so the government has absolutely NO idea who owns gold.

Second, as an American who has traveled throughout a great many countries (and currently has homes in Ukraine, Crimea, Scotland and Switzerland), I strongly DISAGREE that the United States is "the freest country in the world", although it did confiscate the people's gold in 1933. Most countries are much more free, but [except for Britain] probably because they do not have the resources to devote to such huge institutions as the NSA, DHS, FBI, CIA or even to their local police forces.

If one purchases physical gold in the form of GOLD COINS of 99.99% pure gold - such as the Canadian Maple Leaf, they are IMPOSSIBLE to detect if, let's say, they are buried in the ground. A metal detector detects only iron-based objects; NOT pure gold. However, if one purchase American Gold Eagle coins which are about 91.7% gold (with nickel, copper, etc. mixed in), then they may be more easily detected.

In any event, live permanently outside the U.S. (since 2009) and have NO assets within the U.S., so I feel far more confident that I can avoid seizure of any of my assets by the U.S. government - and, at worst, only a partial seizure of my assets by any one particular government.

 

 

 

 

Thu, 08/14/2014 - 16:16 | 5093976 besnook
besnook's picture

i will agree with you on the current "free" status of the world but, at the time, the usa was considered the freeest nation in the world with an unlawful siezure clause in the constitution(doesn't mean nearly as much today).

 

on your other point, all .gov has to do is make trading in gold for anything illegal and they have achieved de facto confiscation by making gold effectively worthless(except on the resultant black market).

 

i have tried to get my wife on board a permanent trip overseas but she won't consider it now nor will two of my adult kids. i managed to convince one child to make a home in asia. the usa is clearly not the place to be anymore. good luck to you.

Thu, 08/14/2014 - 14:31 | 5093366 Ewtman
Ewtman's picture

Elliott Wave analysis indicates Gold is still waiting on Minor wave E of an Intermediate wave (4) triangle to complete before starting wave (5) down to new lows:

http://www.globaldeflationnews.com/gold-elliott-wave-update-for-july-2014/

But don't think that just because gold is declining in price that it is also declining in value. Gold is "real money" and, measured against the value of the Dow Jones Industrials, it is still as valuable as it has always been.

http://www.globaldeflationnews.com/silent-crash-why-the-real-value-of-th...

 

Thu, 08/14/2014 - 13:04 | 5092945 Bemused Observer
Bemused Observer's picture

I have to disagree with Steven...gold is VERY liquid, across nearly ALL economies.

If we were to drop me and Steven into Bumfuck, Morrocco...Steven with his (increasingly worthless) fiat dollars, and me with 6 ounces of 22k gold jewelry, I'll bet I could get my hands on a nice wad of the local currency before he does...

Thu, 08/14/2014 - 12:29 | 5092748 Hook Line and S...
Hook Line and Sphincter's picture

Physical Gold is not an insurance policy. It can be 'like' an insurance policy at best... one that may refuse to pay out in full or at all when needed.

Just ask Ukraine about the very mean spirited aircraft that swooped up their booty, and flew away cackling in the night. Sad faces looked up from the countryside as the shadow of their precious golden insurance policy traced the front of the moon.

Don't forget, the unteeethered fiat of numerous countries is backed by fission and fusion. Last time I looked, these toys were also in the hands of the same countries.

Hook Line and Sphincter

Thu, 08/14/2014 - 16:14 | 5093962 Jack4952
Jack4952's picture

Soon after Areseniy Yatsenuk (the former head of the largest Polish bank in Ukraine) was named Prime Minister, the New York Federal Reserve seized and flew out on one small plane all gold (3 tons) held by the Ukraine central bank, which had previously been purchased by former President Yanukovitch.

Yatsenyuk has since announced that he intends to use $3 billion of the IMF loan to UKraine to purchase gold bullion, but has NOT yet done so. Hell, Ukraine can NOT even pay its bills (well over $5 billion) to Russia for previously delivered natural gas!

QUESTION: If the NY Fed was able to fly out Ukraine 3 tons of gold bullion in ONE NIGHT, just WHY has that same NY Fed delivered to GERMANY a mere 5 tons of gold bullion over the past YEAR?

Thu, 08/14/2014 - 12:18 | 5092688 lasvegaspersona
lasvegaspersona's picture

'Who is buying it' is not the question...people all over the world own all of the 130,000 tons that central banks don't own. THEY give it value! It is a universally accepted store of value...kinda like the dollar used to be, except gold has been 'popular' for 5000+ years.

Thu, 08/14/2014 - 15:21 | 5093652 Marco
Marco's picture

Those willing to take gold in trade give it value, people sitting on piles just have a sore bum.

Thu, 08/14/2014 - 11:40 | 5092476 CHX
CHX's picture

A precurser to what's gonna happen to all fiat currencies. ALL like in every. single. one.

Thu, 08/14/2014 - 11:28 | 5092382 brushhog
brushhog's picture

There is no doubt that gold is a safe haven. Why do you think Gold doubled in value against the dollar after the '08 crisis? In times of uncertainty, people reach for gold. Thats a simple fact.

Thu, 08/14/2014 - 11:00 | 5092232 alexcojones
alexcojones's picture

Gold got a lot of people killed in those countries.

Massive violent overthrow by "freedom" loving gold thieves.

Gold will get lots more people killed, always does, always has.

Gold is like dynamite but heavier.

Thu, 08/14/2014 - 11:35 | 5092443 bardot63
bardot63's picture

Good point.  The dollar and oil and real estate and food never got anybody killed. Wait.....what?

Thu, 08/14/2014 - 12:54 | 5092889 DaveyJones
DaveyJones's picture

and speech, don't forget speech

Thu, 08/14/2014 - 10:40 | 5092132 DrGM
DrGM's picture

Total BS. They could have bought wheat, oil or pork bellies for cryin' out loud. Their currency collpase has nothing to do with gold. Take the other side of the argument and note that gold is down big-time in the last few years in terms of USD, CAD, AUD, etc. etc. In fact, I have been quite happy holding those currencies for the last few years - thank you very much. Don't mistake safe haven for risk. Learn the difference. Sheesh!

Thu, 08/14/2014 - 12:49 | 5092856 jarana
jarana's picture

Why central banks don't hoard wheat, oil or pork as barbaric relics?

Thu, 08/14/2014 - 11:51 | 5092541 bluskyes
bluskyes's picture

unless you have some large tanks, grain bins,or freezers - All the alternatives that you have mentioned involve counter-party risk. Which gold-in-hand does not.

Thu, 08/14/2014 - 11:46 | 5092515 bombdog
bombdog's picture

Yeah like total BS, those Ukrainians should have all given up their jobs and traded futures man!

Thu, 08/14/2014 - 11:32 | 5092414 brushhog
brushhog's picture

Whats "total BS"? Gold is up, their currencies are down. Period. Nobody said gold is the REASON why those currencies are down, just that in times of uncertainty people reach for gold. Its not even an argument, why do you think gold doubled in dollar terms after the '08 crisis?

Thu, 08/14/2014 - 11:04 | 5092243 Hongcha
Hongcha's picture

They could have bought wheat, oil or pork bellies for cryin' out loud.

- more difficult to transport, trade or keep

Their currency collpase has nothing to do with gold.

- no one is saying it did

Take the other side of the argument and note that gold is down big-time in the last few years in terms of USD, CAD, AUD, etc. etc. In fact, I have been quite happy holding those currencies for the last few years - thank you very much.

- granted. you want a position, not a complete transfer into PMs.

Don't mistake safe haven for risk. Learn the difference. Sheesh!

- if you were Ukrainian, Argentinian or Indian, you would have preserved wealth to the degree you were owning PMs over your local currency.  These are not insignificant countries.  That is the sole point the author is making but you are setting up straw men and punching them.


Thu, 08/14/2014 - 11:11 | 5092262 Save_America1st
Save_America1st's picture

who the hell is "Amanda Cooper"????   What a total idiot.  She sounds like a reject from CNBS with her idiotic comments and questions. 

Mark O'Byrne should have ended the conversation way sooner than as far as it got.  I wouldn't have had the patience to answer 2 questions from that bird brain.

It's scary that this chick is from Thomson Reuters, has no clue about gold or the economy what-so-ever, and yet Reuters is going to be part of the new silver price "fixing" operation that's supposed to go live tomorrow.

What a fucking joke that's going to continue to be. 

Thu, 08/14/2014 - 12:21 | 5092701 disabledvet
disabledvet's picture

It is interesting to ponder what a "gold economy" would look like. In the meantime we have to deal with the real thing.

Simply put the recovery still stinks 6 years into this thing...not for lack of trying nor effort nor productivity (though the whole USA thing has certainly not been a morality tale)...so, nay..."we soldier on."

"Some day son the Depression gonna end" to paraphrase the movie Apocalypse Now.

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