Author and monetary expert Jim Rickards says that gold, apart from its qualities as a form of insurance against conventional economic crises, is an essential hedge against cyber warfare.
In an interview with Henry Bonner at SprottGlobal.com, ahead of the Sprott-Stansberry Vancouver Natural Resource Symposium taking place this week, Rickards said this subject would form part of his talk at the conference.
We have frequently covered the risks posed by cyber warfare and cyber terrorism to markets, investments and deposits, and these risks remain, as yet, widely underappreciated in the mainstream media and the wider world.
For example, the Stuxnet virus believed to have been deployed by the U.S. and Israel in cyber war against Iranian nuclear reactors almost caused a major environmental disaster in 2010. Dormant malware – believed to be of Russian origin – was found hidden and awaiting activation in the software that runs the Nasdaq exchange.
Moscow-based Kaspersky Lab showed earlier this year that an international team of hackers gained access to bank’s customer accounts – with the ability to alter account balances without the banks even being aware of their presence.
These examples show the highly vulnerable nature of the interconnected systems upon which people in the west have come to rely.
As Rickards astutely points out,
“Physical gold is a non-digital asset. You can’t attack it with cyber warfare, so I think it has another insurance function for investors there.”
He believes that the Greek crisis was a foreseeable step in the centralisation of power in Europe. In 1992 when it was agreed to launch a single currency there was an appetite for a common currency but a strong aversion to fiscal and political union.
The architects of the euro knew that the single currency could not exist indefinitely in the absence of fiscal union and so the project was launched in full anticipation of a crisis which could then be used as a “forcing strategy” to achieve fiscal union.
“We’re getting closer to that now,” he says. “Greece now has to run its government according to German dictates. Greece has already outsourced its monetary policy to the European Central Bank, and now it’s sort of outsourced its fiscal policy to the German finance ministry.”
“So you’re on a path to unified fiscal policy and ultimately the Eurobonds – bonds backed by full strength and credit of not just any one country but the entire Eurozone.”
He believes that there has been a lull in the currency wars between China and the U.S. but that it will likely resume next year if China manages to get the yuan included in the currency basket that makes up the SDRs at the IMF.
He says the U.S. is the gatekeeper of the IMF and so China is on its “best behaviour”. He says the Chinese are resisting the temptation to depreciate their currency despite a sluggish economy with this goal in mind but that once the objective has been achieved it will go back to currency manipulation.
He points out that the Chinese continue to accumulate large volumes of gold and that China’s stated gold reserves are an understatement.
“I believe that the numbers they have shown are significant but not nearly as high as what they actually have.”
When asked whether now is a good time to hold gold, he replied,
“I think it’s always very important to own gold. I’ve recommended that investors have about 10% of their portfolio in the yellow metal.”
He believes that such a proportion will not hurt investors too much even if the price continues its decline but that,
“If I’m right and some catastrophic event is on the horizon, then that 10% would be your portfolio insurance.”
He emphasises, however, the importance of holding physical gold as opposed to digital or paper gold.
“These products allow the counterparties to terminate the agreement by giving the investor a dollar value of their gains. But that would deprive you of any future gains. You might get cashed out just as the crisis was beginning and not be able to participate in the upside as the crises worsened.”
Rickards is correct in these warnings. If you cannot visit, hold and easily take delivery of your gold in the event of a “catastrophic event” then you do not own gold – rather you are speculating on the gold price.
All financial service and investment providers and indeed gold brokers are at the mercy of and dependent on technology today. However, if you only have one point of contact with your gold – a website – and you cannot buy, sell or take delivery of your gold then you do not own gold as financial insurance and a safe haven asset.