In the last few days, we have seen yet another financial expert make the claim that a stock market crash is imminent and advising that investors would be prudent to diversify and create a safe haven in gold
bullion which has already risen 3% this year so far and is currently at $1,106 an ounce (at time of writing).
Marc Faber, author of the Gloom, Boom & Doom Report,a Swiss investor, investment banker and fund manager, stated in a recent
interview with MarketWatch that the stock-market downturn could result in stocks hitting lows not seen in five years. He went on to warn that the S&P 500, which dropped to 1,881 1/20/2016, could drop to its 2011 low which was below 1,200.
Now, what is the main factor for the sharp drop in the stock market and in financial liquidy worldwide? Well, Faber stated, just as we wrote in our previous article on the historic breakout of gold from oil, that this current worldwide financial concern, is because of the continuing drop in oil prices.
Faber also went on to state that the current low price of crude oil indicates a shrinking global economy. “When oil prices increase, it basically is a consequence of expanding [global] liquidity,” Faber said, so inversely, this unrelenting fall suggests contraction. As we write this, the current price of oil is at $27 a barrel, the lowest it has been for over 12 years.
So if oil continues to drop and the stock markets around the world continue to be affected by it, what can investors do? In an interview with ETF.com from December 2015, Faber was asked what investments did he think were of value? His answer was interesting. He said; “Again, if you said, “Marc, here is $1 million, but you have to put everything in either gold or in the Dow Jones,” then I would say I’d take gold.”
In a recent article, world-renowned finance expert, Egon Von Greyerz stated that a stock market collapse and a surge in gold investment is imminent, the question is what will be the trigger?
The question I want to ask first is, is a stock market collapse really imminent, let alone any collapse resulting in a rush to invest in gold?
The only way to answer that is to look at the evidence that is before us, evidence that shows us that we could be heading for a collapse in the stock market.
Since the financial crisis of 2008, the main money men of the world have increased world debt in the last 7 years by nearly 50%. In 2008 the worldwide debt was $150 Trillion dollars and at the start of 2015, it had increased to over $220 Trillion, an increase of $70 Trillion that came about because the financial institutions in major countries have been carrying out quantitative easing to free up the pressure on them. The purpose of quantitative easing is to create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. This new ‘ cheap money‘ swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitative” easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The problem is, people are not borrowing, so the debt continues to swell.
On top of the above, you also have the financial bailouts of countries such as Ireland, Spain and most publically recognised, Greece, which naturally add to the debt on a daily basis.
Looking at all the evidence out there concerning potential stock market or financial collapse (and the above is only the tip of a very large iceberg), it is easy to be speculative about our financial futures. But when the International Monetary Fund (IMF) states at their conference in Peru last week, that sustainable recovery has failed and cheap money has led to bubbles and debt and the fact that they have not even finished fixing the flaws in the global system that were exposed by the last financial meltdown in 2008, it seems we are in for a very fragile state right now.
On the subject of a potential stock market collapse, the IMF said ” “Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the IMF goes on to say in their report that some markets do appear to be “brittle”
Source: The London Guardian Newspaper
Historically precious metal, especially gold, has performed well gainst the performance of stocks and shares (see my page on gold investment), and is immune to any collapse, because it sits outside the financial control of banks and financial institutions. Physical gold and some silver stored outside the banking system will be one of the few ways to preserve wealth over the coming years. I strongly recommend you read the full article I referred to at the beginning, by Egon Von Greyerz, if you are serious about protecting your financial well-being from the financial situation that is clearly on the horizon. You can also check out my page on where to buy gold, so you can get a more inciteful indicator on what is involved and the benefits of investing.