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Why Does the Price of Gold Rise at Times of Uncertainty?

Should I Buy Physical Gold or ETF Gold?

Gold prices tend to soar when fear displaces greed, is an oft-quoted phrase, and it is relatively true.  The current value of gold, whilst surging ahead on a long-term scale, is far lower than at the depths of the banking crash of 10 years ago and the wobble caused by the structural problems of the Euro that followed in the following years.

So, with much economic and political uncertainty rising in both Europe and Asia could now be the time to start transitioning some of your wealth into the security of gold?

Problems in Europe that may trigger gold buying

There are a number of political and economic related shocks that are raising concerns around Europe.  Most notable is Brexit, which threatens to hamper the UK economy in the short to medium term. However, the shocks from this are likely to have wider ramifications in Europe. Nationalism is on the rise in Italy and in much of eastern Europe, whilst many in Sweden are also watching the UK’s progress out of the EU with increasing interest.

In purely economic terms, German banks are heavily laden with loans made to Greece, a country that doesn’t look that much improved from its last near bankruptcy.  If the Greek government simply defaults, then it would spell disaster for the German banking system.

Ireland is also in a similar position. It is proposing to merge the Universal Social Charge with its pensions provision to attempt to close a huge black hole in the pension budget. The USC was introduced as an emergency measure during austerity years to fund the deficit in the wider public finances.

The 2018 Irish National Risk Assessment states that the pension system faces a number of "very serious demographic, adequacy and sustainability challenges" due to the country's ageing population.

Problems in Asia likely to trigger gold bullion purchases

There are a number of threats to Asia, but one of the largest is the indebtedness of the Chinese government and a growing concern about the sheer number of “zombie” industries that are allowed to carry on due to government influence. There is also growing concern about the property industry in the country, which has seemingly built entire towns that are almost uninhabited.

Many areas of the country have been supported through the international downturn by government infrastructure improvements, these have also largely been funded by government debt.

Japan continues to be hampered by low levels of growth due to its significantly ageing population and its extremely low birth rate.

International financial system shocks and gold bullion

With a number of shocks on the horizon, along with the increased volatility of the US trade policy under Donald Trump, we could see storms gathering on the horizon for many major international businesses. Gold is likely to soar in value if these problems emerge from the shadows, so taking a gold position by buying gold bullion could become increasingly useful as a shield.