1. SECURING VALUE
By Natalie Da Breo
Our Global View June, 2013
When we plan our finances, build our investment portfolios, and move to
secure assets for our future, one of the most pertinent questions we must ask
ourselves is, “how much gold should we own”. Yes gold! That precious rust proof
yellow metal that was at one time not so long ago the world’s only true measure
of monetary value! Admittedly, the dynamics have changed so significantly that it
may be somewhat of an exaggeration to borrow from the old adage, “he who
owns the gold, makes the rules,” but there is certainly no questioning the value of
gold and its continued significance as a sound asset even today.
A whole course on private finance would be useful in this context but in the
immediate we are concerned with one thing – gold and of the physical type; gold
coins, gold bars, gold bullion even gold jewelry. See it, feel it, touch it, believe it
kind of gold is the type we favour. It’s not vague or abstract like many modern day
investments but tangible and real.
There is nothing revolutionary or contrary about our thinking. In fact, our
view is consistent with gold’s centuries old track record as a valuable commodity.
As far back as the fifth millennium gold was used as a sacred metal in Iran and
Iraq; and the Turks used gold coins as early as 560 BC.
In the early 1800s the gold standard was introduced in the United Kingdom,
spread to other countries in Europe and the United States during that century and
continued with minor interruptions until 1971. The system’s construct protected
asset value from the vagaries of the money market by creating a fixed rate for the
dollar to be converted to gold by central banks on demand.
Gold is heavy, whereas paper money is light and easy to port around
making the purchase of goods and services far easier. Gold is a limited resource
that is usually sourced through an extremely difficult, expensive and
environmentally complicated mining process whereas for central banks paper

2. money can be in infinite supply because it can be printed at will. But the irony is
that it is this very convenience of paper money that makes it far less valuable as a
long term source of security than gold.
We like gold because of the scarcity of its supply. It is partly in the dollar’s
weakness that gold finds its greater strength. One might want to invest in
annuities and bonds, land even oil or any other commodity but those of us in
search of stability and liquidity will find it in physical gold.
Here in the Caribbean where resources are very limited, we can ill afford to
embark wholly on high risk investments that may become casualties of the
currency crises that plague the world.
The Eastern Caribbean dollar issued by the central bank in St. Kitts is
pegged to the United States dollar and therefore subservient in every way. The US
dollar unfortunately is losing ground; some signs of economic recovery in the US
may not be enough to mend the structural weaknesses in the system to restore
the integrity of the dollar in the short to medium term. One camp of economists
predicts that the dollar will struggle for some time and it will eventually collapse;
but we are not prophets of doom and do not generally subscribe to extreme
views.
All we know is that while the probability may vary from currency to
currency, there is always the possibility that the value of paper money may
diminish to negligible or zero value whereas there will continue to be significant
value in gold which has never been worthless.
Paper money continues to serve a useful and indispensable purpose to all
consumers throughout the world today. It would follow therefore that this piece
is not intended to encourage readers to go out and convert all their cash to gold
when the markets open in the morning. No.
Keep some Eastern Caribbean Central Bank currency, some US dollars,
pounds sterling and Euro as a means of diversifying your cash portfolio to reduce
risk. Observe keenly the Central Banks’ posture, rates of inflation, levels of
national borrowing, commercial and development banks’ policies and lending

3. trends and at the first sign of danger, except in the case of our own EC dollar,
move. If we all abandon the EC dollar, the sub-regional economy will collapse and
everyone will be a loser. So with our own currency we must gamble.
The gold per ounce price on the United States market in April was around
the $1550 mark; this is significantly lower than the 2011 high of $1920. Gold
prices traditionally peak and then consolidate at lower levels. The advantage to
the buyer is that consolidation phase levels are usually higher than pre-peak
values.
The key is therefore to learn the market. When inflation rates are high, the
public and governments lose confidence in the dollar and they begin to turn to
gold; the price rises until the economy settles and then alternative investments
that bring higher returns become the preferred option. Then the price of gold
falls at the perfect time for you to step in.
The purchase of gold should be viewed less as an investment and more as
an insurance policy. Taking counsel from the fact that at times of global instability
the price of gold rises we are encouraged not to view its purchase as an
emergency response to a difficult trading environment.
More likely than not, if you keep gold for the long haul you will make a
profit but it is the security of your stored value that is most attractive about gold.
Economists suggest 5-10% but we believe that because our innate weaknesses
require us to set the bar higher, up to 15% of our value should be stored in gold.
The balance will remain available for riskier investments that may bring greater
returns.
The central bank in China is encouraging citizens to buy physical gold in
normal times. We should do likewise. The bank’s direction is consistent with the
country’s own approach which is characterized by consistently increasing
investments in gold. Significantly China is now the world’s biggest gold producer
and consumer although amongst all countries, the United States continues to
hold the most gold in reserves. Although the relative gap between it and other

4. countries is closing it continues to have a significant lead. Therein lies the
resilience of the US economy and the fortitude of its monetary system.