Investing in gold offers 'essential insurance against financial shocks'

17 February 2009 / by Rachael Stiles
As bank shares continue to fall, former editor of The Times, Lord William Rees-Mogg, maintains that investing in gold offers "the best insurance against future shocks" in the stock market.

Gold prices have reached record highs in recent months, closing at $935 an ounce on Friday, and analysts widely expect it to reach $1,000 an ounce in the coming months.

In response to Barclays Capital's comments about gold prices having enjoyed eight years of gains, Lord Rees-Mogg noted that he has been arguing that investing in gold provides "essential insurance" against major problems in the stock market for much longer than eight years.

To illustrate his point that gold is safer than other stocks and commodities, Lord Rees-Mogg said that since Gordon Brown started selling the Bank of England's gold reserves in 1999, when he was Chancellor, gold prices have risen more than 200 per cent, while shares in the country's biggest banks have fallen by as much as 90 per cent.

Investors should "never forget the value of gold" in time of crisis such as these, he urged, echoing what many investors have already done, which is to increase the level of gold in their investment portfolio.

Whilst he warns that gold "can become significantly overvalued," he has found that gold prices have been one of the "most useful pieces of evidence about the health of the world economy".

With the recent turmoil in the global financial market, many people have been investing in gold due to its status as a safe haven from stock market fallout, "and they are right to do so", he said, "because gold is a unique commodity" which offers two qualities -"liquidity and reality."

This rare combination means that gold can almost always be traded, and, unlike other liquid commodities or currencies, such as the US dollar, it has "real value".

"Dollars do not constitute a real asset" he said, such as investing in property, it is "simply a piece of paper", whereas gold has been a "much better store of value".

Both individuals and the Government can learn from the mistakes of last year, Lord Ree-Mogg said, many of which could have been avoided.

"Governments need to create a new world system, in which gold, as a stabiliser, should play its part." he concluded.

"For individuals, gold remains the best insurance against future shocks and the best store of value."

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