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If the Lights Go Out, You’ll Want to Own Gold

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Imagine the financial chaos that would ensue if there was a widespread, long-term, power grid failure. Business would literally halt.

Stop and think for a moment about how dependent the financial system is on computers. Banking, stock and bond trading, and the vast majority of our day-to-day transactions, rely on computer networks. Many people don’t even use cash anymore. Everything is digital. We even have wholly digital currencies like Bitcoin.

We take these computer systems for granted. In reality, they put us at considerable financial risk. This vulnerability is another reason you should buy gold.

During a recent interview covered in Forbes, Marc Faber talked about the importance of owning physical assets like gold and silver, and holding them outside of the banking system. He said the biggest geopolitical risk isn’t a conventional war. It’s a cyber attack that could take down the power grid.

What is our vulnerability? It is unlikely somebody would invade the US. I mean, nobody is as foolish as that. It’s unlikely that someone will go invade China … So, I think the vulnerability of society is less in direct, big world wars that are fought not with tanks. They are fought by say somebody could turn off the lights in New York, or the electricity, or the internet. If you switched off the internet, what would happen? First of all, nobody could go shopping because everybody shops with a credit card. So, in these times, you want to actually have access to something physical that is recognized as a medium of exchange.”

Of course, it wouldn’t take a cyber attack for you to lose access to your money. Governments can limit your ability to get cash. As we recently reported, EU member states are considering a proposal that would allow them to temporarily stop people from withdrawing their own money from their accounts. The policy is intended to help prevent bank runs.

During the Greek financial crisis, people faced withdraw limits and currency shortages. The entire banking system shut down for three weeks. Even when banks reopened, depositors faced withdraw limits of 420 euros a week. As a result, a robust barter economy quickly developed out of sheer necessity.

These risks underscore the importance of having access to physical gold or silver. In the event of a total electrical grid shutdown, or a successful cyber attack, or a government induced collapse, you can continue to transact business if you own precious metals.

Faber also emphasized the importance of diversification in general. In the event of a financial collapse, you don’t want to have all of your eggs in one financial basket.

By being in equities and by being in gold, and also having some exposure to bonds, you have some diversification. Then you can hope when the hour of truth occurs, you will only lose, say, 50% of your assets, but your neighbor loses everything. So relatively speaking, you will have done very well.”

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