Why Precious Metals Will Be Best Safe Haven Assets

Suddenly the calm is over and the storm is upon us, at least in the Northeast USA if not yet in financial markets. That said the trouble brewing in those markets looks about to turn into a once-in-100-year storm too.

US political instability is a frightening prospect but that looms large with a very close race for the White House and uncertainty over the composition of the legislature after the elections on Nov. 6. The automatic austerity of the US “fiscal cliff” on Jan. 1 is far from being automatically avoided and markets loathe this sort of uncertainty.

Debtors Prison

At the same time the crisis in the euro zone is about to blow up again with Greece once more facing default and Spain on a knife-edge. Each time the euro-zone crisis intensifies it gets bigger in size and the solutions look less realistic. But then as the US experience shows that is what borrowing more to meet problems caused by over borrowing does to an economy.

Asia is also no safe haven with Japan and China both facing economic crises, not unconnected to the downturn in global demand particularly in the euro zone. Suddenly the whole house of cards looks very vulnerable with the winds blowing hard from all angles. Hurricane Sandy is something of a metaphor for economic reality.

Now will gold and silver protect investors from this storm? Technical charts suggest extreme pressure in financial markets could drop gold to $1,620 an ounce and silver to around $28 but that is about it. Moreover, the Jim Sinclair thesis gives reason to expect a rapid recovery and then some (click here).

What Mr. Sinclair foresees, as one of the most celebrated bullion bankers of all time, is that the bullion banks will use this weakness in the gold and for that matter silver price to reverse out of their short positions and go fully long in the market. Why would they do that?

Bond Market Crash

It is simple enough. The next stage of the financial crisis just has to be a bond market crash and much higher global interest rates, and a flight to precious metals. The bullion banks know this and want to be there holding all the gold and silver when that happens.

Gold and silver will be the best asset a bank can have on its books when the paper house of cards comes crashing down. There will have to be a global reset for money and that reset will have to include precious metals to give it any chance of working successfully, that is to say restoring confidence.

You can if you like try to be immensely clever and exactly time this reversal but to be honest you are not likely to get this right unless you happen to work for one of the bullion banks. Just to buy and hold precious metals is probably the best thing any reasonable person can do. Get your marketing timing wrong and you will miss this historic opportunity for the sake of trying to squeeze out a little extra profit. 

About the Author
Peter Cooper

ArabianMoney.net editor and publisher Peter Cooper is based in the Dubai Media City, and has been working as a senior journalist in the region since 1996. He was then the founding editor of the Gulf Business, the first-ever business magazine published in Dubai. In the year 2000 he was a founding partner in the business news and information website ameinfo.com.

His book about ameinfo.com, ‘Opportunity Dubai: Making a Fortune in the Middle East’ was No.1 in The Daily Telegraph Book Club for six months. An Oxford graduate in politics and economics, Cooper spent a decade in London as a financial journalist specializing in real estate and construction. He is also the author of ‘Dubai Sabbatical: The Road to $5,000 Gold’.

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