Risks Associated With Gold Investing – Keep It Physical Outside A Bank

In this short educational video by GoldBroker.com, the risks associated with gold investing are nicely summarized. Although nothing new, it provides a good recap of the do’s and don’ts that gold investors are supposed to know.

In sum, the video discusses the necessity of holding precious metals in physical form outside the banking system. Why? Because of …

  • the risk of bankruptcy
  • the risk of confiscation
  • ther risk related to price manipulation

Investing in gold is generally done as a security measure to protect oneself against the risks associated with the fragility
of the financial system and to have access to a universally accepted means of payment in case of a bank failure or temporary closing. If you have some gold in the bank’s vault and the bank closes temporarily (or worse, goes bankrupt), you lose the advantage of having close at hand a means of payment for your basic needs in times of trouble when access to traditional means of payment like cash or bank cards is hampered.

The risk of bank failure is a very serious one with the banking system being entirely interconnected.

Even though the risk is small, confiscation as happened in the past. Confiscation could happen following the panic movement in the banking system or just before announcing a new monetary system. In that case, only gold at one’s country of residence is risky because it can be seized legally.

Whether one’s gold is allocated or not, in order to understand the amount of risk associated with storing gold within the banking system, one has to grasp the mechanism of price manipulation occurring through the sale of previously leased physical gold. Traditionally, the central banks have leased this physical gold to the bullion banks that specialize in gold trading which helps make them a profit on their idle gold stock while maintaining the price low. Price manipulation can only happen in these 2 ways: either with the sale of previously leased physical gold on the market, or with the massive sale a virtual paper gold. In both cases, the sheer mass of supply helps keeping the price low.

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