You may associate owning gold with many things. A box full of shiny yellow jewelry. Perhaps a gold nugget tucked away in a safe. You may associate owning gold with your ETF account. Some people have gold in their teeth, while the closest other come to owning gold is having a fish.
The truth is, unless you physically hold pure or very near pure gold coins and gold bars securely but close enough that you can always get your hands on it, you don’t own gold. Jewelry is often gold, but usually only about 60 some percent pure gold. A gold nugget is impure as well, and needs a proper assay before it can be properly valued and traded.
Owning a gold ETF is a worse option for owning physical gold than removing your own gold fillings, because gold ETF’s do not sell or deliver physical gold. A goldfish is a great pet, but a goldfish is no more gold than an ETF is. Owning gold means owning physical gold coins or bars.
Owning Gold To Ward Off Financial Monkeys?
What is a financial monkey? I wrote an article explaining financial monkeys a little while back, but in short a financial monkey is a problem that comes up out of seemingly nowhere, creates strange and chaotic events, and then disappears back into the financial jungle, leaving you to only wonder when it will return again and destroy once again.
Two Men In Thailand Return To Find A Monkey Sitting On Their Motorcycle. At 22 Seconds, The Monkey Begins To Scratch And Bite At The Motorcycle Seat. At 38 Seconds, One Man Throws His Shoe At The Monkey. At 38.1 Seconds, The Monkey Attacks The Man At The Speed Of Monkey Light. A Fist Fight Between Man And Monkey Follows.
For instance, the recent “Fat Finger” mistakes that have really sent markets into spins can be classified as financial monkeys. People lost money. People made money. People that made money had their winning trades called back when the fat finger mistakes had to be “Un-wound”. Things happened very quickly, and everything went catty-wampus right before it went sideways, or down really.
A fat finger error occurs when an order to buy or sell is typed in incorrectly manually on a keyboard. Entering any number of wrong data can trigger an economic event that can be massive, and result in equally large problems in the market. For instance, these recent examples were given on Wikipedia:
In 2014, a Japanese broker erroneously placed orders for more than US$600bn (£370bn) of stock in leading Japanese companies, including Nomura, Toyota Motors and Honda which was subsequently canceled. If the order had been fulfilled it would have exceeded the value of the economy of Sweden.
In 2015, a junior employee at Deutsche Bank whose superior was on vacation confused gross and net amounts while processing a trade, causing a payment to a US hedge fund of $6bn, orders of magnitude higher than the correct amount.The bank reported the error to the British Financial Conduct Authority, the European Central Bank and the US Federal Reserve Bank, and retrieved the money on the following day.
Owning gold will not keep these mistakes from happening, but owning gold and diversifying out of markets that are prone to visits from financial monkeys can help greatly reduce the economic impact you may suffer from doing battle with an angry financial monkey.
Owning Gold During A Flash Crash
A Flash Crash is another type of evil financial monkey unto itself. This financial monkey is showing up and ruining the party more often lately. Unlike days of yore when financial monkeys were more like unicorns, buy and sell orders were placed by people. These orders were placed mouth to ear and vice versa. Today, computers do more and more of the trading, and they do it in a millionth of a second.
There is no mouth to think about what it is saying before it says it. There is no ear to question what the mouth is saying. Things just happen. Financial monkeys happen, and when a flash crash happens, no one is in charge except for the financial monkey in the trading algorithm wrench.
Years later, the cause of the 2010 flash crash was revealed. One man had figured out how to place 19,000 trades in a matter minutes through high speed computer trading software. The trades were designed to force the market algorithms to shift in a way that netted this trader about $40 million in profits in just part of a day. This financial monkey has a name, and his name is Navinder Sarao. Mr Sarao went to jail.
Will Owning Gold Ward Off Financial Monkeys?
Mr. Sarao’s high speed antics cost some people alot of money. I’m sure Mr. Sarao is not busying himself in his cell counting $40 million, either. Those that insulate themselves by owning gold and keeping it securely nearby, were not truly bothered by Mr. Sarao’s monkey business. Their wealth remained intact.
If you would like to try owning gold to ward off the detrimental effects of financial monkeys, ITM Trading makes owning gold easy. Just pick up the phone and call us. 1.888.OWN.GOLD.
No Monkeys Or Cash Were Harmed In The Making Of The Above Dramatization.