There have been several high-profile speeches and articles recently made by prominent investors in the world of banking about the pros and cons of investing in either gold or in a digital currency like the US dollar. Some of these experts say that gold can be a safe haven in case of economic instability, while others say that it is a bad investment because it is so difficult to manipulate and it is hard to make sure you get your money back. In this article I will explore these issues and hopefully provide you with a better understanding of the advantages and disadvantages of investing in either the precious metal or in some cases in both.
First, we need to understand why many institutions want to invest in safe-haven assets. One reason is to protect themselves from risk. If the Federal Reserve were to suddenly reduce interest rates to zero percent and let the Federal funds rate to stay that way for a couple months, it would be very difficult for banks to meet their financial obligations. This would cause a major financial crisis.
The second reason that financial institutions want to invest in safe-haven assets is to avoid being forced to buy up all of the government’s debt and face having to print more money to support the economy. If central banks of the world did print too much money the value of their currency would fall and they would be forced to sell their foreign reserves.
For any of these reasons it is in the best interests of the institution to protect themselves by hedging their portfolio against future fluctuations in the value of their currency. In this case they want to put their money in a safe-haven asset such as the US dollar.
However, one problem with investing in safe-haven assets for financial institutions is that they do not always play fair in the long run. It is very difficult to know if the central banks of the world are going to be able to keep their currency from falling and causing a global economic crisis. This makes it a risky investment for investors.
The best place to store your safe-haven asset is with a custodian. This type of custodian will have a team of professional financial professionals who will act as a neutral third party between you and your custodian and provide you with all the necessary tools to monitor the security of your investments.