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Is gold still a safe investment?

October 27, 2008 by  

Should you still invest in gold?Gold is traditionally viewed as a safe investment in troubled economic times. However, the price has been falling lately – a trend which has left many experts confused.

This behavior suggests that the credit crunch may be forcing investors’ hands. Mark Hansen of commodities research firm CPM Group told Fox News that people have been making a "mad dash for cash," which has included selling their more valuable assets such as gold.

In a research report released Thursday, the World Gold Council agreed with this sentiment, explaining that funds have been forced to sell precious metals to meet margin calls.

"The fact that gold did not head higher during the current leg of the crisis seems to reflect a combination of the rise in the dollar, deleveraging of commodity positions, sales to meet margin calls and the unwinding of the long gold, short dollar trade," the report states.

Meanwhile, some experts have argued that it is actually a good time to buy gold, because it is a good investment during times of inflation.

Gold Stock Analyst newsletter’s John Doody told the news provider that the recent bank bailout will help prevent deflation and create a good environment for gold investment.

The commodity recently fell to below $700 for the first time in more than a year.

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  • david

    I have read that Gold ETFs are a good way to buy gold if you don’t have much cash on hand. Does anyone know if that is correct? If so what are some good places to buy.

  • Ron

    In September 2008, shareholders in EFT Securities were left high and dry and unable to trade popular commodity securities, due to concerns over the future of their backer, AIG.

    In fact, banks and brokerages stopped making markets in the Exchange Traded Commodities (ETCs) backed by the troubled insurer and sold by ETF Securities (ETFS). The price of the stocks also plummeted over 50 percent due to the worries over AIG.

    Gold ETFs are vastly different to holding real gold. Turbulence, such as the above in the market, can affect the value of those gold ETFs markedly.

    Owning gold ETFs means that one owns a stock in the price of gold rather than gold itself even though corporations such as ETF Securities owns gold. How much gold they own is not clearly discernable by the average “Joe” who may own ETF stocks.

    Even a downgrading by credit agencies S&P or Moodies can drastically affect the share price in ETF Securities, as it has done, In fact in September 2008 shares in ETF Securities products, which are backed by AIG, were down as much as 50% in one morning after US insurer was downgraded by credit agencies S&P and Moody’s.

    The cold hard reality is that if the issuer of an exchange traded note goes bankrupt, investors holding exchange traded products backed by these notes will join the ranks of other creditors hoping to get their money back.

    Streettracks gold etf, for example, could also be in the same boat. Streettrack gold shares, Streettrack gold trust, you name it. It can equally apply to Canadian gold etf, gold etf in India and Barclays gold. Any etf gold funds in fact could suffer the same fate. With any gold etf one does not own actual gold and cannot redeem gold from the fund.

    Indeed, to buy gold etf is a venturous and courageous, and one might almost say dangerous activity, in today’s economic climate.

    However, for those astute people who decide to buy gold and own actual physical gold, as distinct to ETFs, their stored value remains stable. As the value of the dollar decreases, it takes more dollars to buy an ounce of real gold. The “share price” or stock of actual solid gold does not deteriorate as a result of any financial meltdown. Indeed the value of their gold holdings are very likely to go up and the gold price will continue to increase with the addition of more and more people seeing it, quite rightly, as a safe haven in these stressful times.

    The true value of gold, measured in dollars (US) is more like 1500 according to some sources and this means that, if you buy gold now and hold on to your gold, your holding is going to be very safe.

  • Bob Livingston

    My opinion is that the ETFS were set up to confiscate. This is the perfect scheme for a huge catch of gold for the government to take all at once. Its too tempting when things get really bad with paper money.  I still recommend holding physical metal.  If you don’t have much money, buy smaller denominated coins like 1/10th American Eagles or Pre-1964 Silver. –Bob

  • http://none ollie

    I agree with Bob to hold physical gold and other basic items of value like gas, food, insulated shelters, solar panels, camping gear, etc. Let deflation take these prices down and then stock up for a long fight. This crash was orchestrated from the beginning to steal money from everyone. There were regulations in place, but the bankers have gnawed through these leashes like dogs who just want to fuck everything in the neighborhood. The money changers of the modern world are extremely visionary and brilliant, and tightly united in domination. They say they are surprised by what has happened but even economic novices saw this coming.

    Now we are running a gauntlet of whirling phantoms and mine fields. Their obvious plan is to allow the chaos to grow until it reduces the population down to an environmentally sustainable level, which they can manage. They don’t need or want large populations anymore as high tech does the work now. “We the people” are just a big burden to them. They rationalize they are doing the right thing. Most people have no idea what they are in for, just like WW II Jews had no idea. No investments from Wall Street or the Government can be recommended in such an environment.

  • Michael R Steinberg

    What good is gold if society collapses? We are not rats in a storage den…or has life been reduced to that?!!


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