Gold and Terrorism: Is Your Portfolio a “Soft Target”?

By: Jeff Clark, Senior Precious Metals Analyst

The increase in the number of terrorist attacks is no doubt concerning.

In spite of tighter security measures, it feels like the world has become less safe, not more. Polls show the majority of Americans worry about terrorism. Half of respondents in one poll said they would no longer travel to Paris.

There are many angles to terrorism, but as precious metals investors we naturally want to know how gold fits into the picture. Let’s look at the truth and the myths—and how terrorism stretches beyond just one-time acts of violence…

How Gold Responds to Terror Attacks

We buy gold for many reasons, but holding it to protect against a terrorist attack usually isn’t the first one that comes to mind.

There’s little that can be scarier than a senseless act of terrorism. Fear shoots higher among both citizens and investors, and stocks generally do poorly. How does gold perform in times like this?

In light of the recent attacks in Orlando and Istanbul, I looked at the biggest terrorist attacks since 1990 and measured gold’s reaction to them over one day, one week, and one month. Here’s what we found.

 
You can see that while gold did not rise in reaction to every event, it generally moved higher.

This is what we want from a safe haven investment, especially when you consider what most other investments are doing at the time. In response to 9/11, for example, the S&P was down 4.9% the first trading day after the stock exchange reopened, and down 11.6% ten days after the attacks. Gold held its own compared to the stock market, so its relative performance is even better than what the table reflects.

But terrorism isn’t just about one-time events…

Does Your Smartphone Contain Gold From North Korea?

In spite of ongoing sanctions from both the UN and US, North Korean leader Kim Jong Un defiantly continues his missile testing campaign. Which begs the question: how, exactly, is he able to fund such an expensive program?

It’s difficult to establish facts in a country that is oppressively communistic, cut off economically from other countries, and with a media controlled by the government. But there is strong evidence that one of those sources is the sale of gold and other minerals. And it includes the very possibility that you and I help fund the very missile tests our government is trying to stop…

Gold has a number of uses in electronics. As many of you know, gold bullion products from the US Mint must be sourced from domestic operations only—but there is no such restriction for purchases made for electronics.

Reuters reported in March that SEC filings show 25 companies—including Pitney Bowes, Winnebago, and Iridium Communications—had bought gold from suppliers that use a smelter operated by North Korea’s central bank.

Most analysts thought the government-controlled refinery was inactive, but supply auditor Conflict-Free Sourcing Initiative reported the refiner has been selling gold bars out of its inventory to generate revenue for the military.

That means your smartphone could inadvertently contain gold that originally came from North Korea. Which means you may have indirectly funded their missile tests.

There are potential ramifications to the gold industry from North Korea’s terrorist activity…

First, new sanctions now require US companies assure that no gold is sourced from the communist country. Although North Korea is a small player in the global gold market, this could disrupt the supply chain for some electronics suppliers.

Second, consider the consequences if a North Korean missile hit a populated area. Or if they launched a live nuclear missile. This scenario would lead to much higher gold prices.

Is Your Portfolio a Soft Target?

Gold bullion can provide a hedge against all forms of terrorism. But even if we don’t personally experience a terrorist attack, your portfolio may feel like it’s under attack when any kind of systemic risk materializes—risks that threaten not just our safety but our standard of living. The kind of risks that can have a deep, personal, and long-lasting impact.

Consider how the following “terror” attacks would impact your finances…

  • Negative interest rates come to the US (or your country)
  • The stock market crashes
  • The economy enters a recession or depression
  • Currency wars escalate and crash the US dollar
  • Inflation kicks in
  • Your bank account is hacked or frozen
  • The Fed begins to print money again
  • Markets lose confidence in the Fed and it becomes front-page headlines
  • The government forces retirement accounts to buy treasuries
  • A derivatives chain blows up
  • The national debt unexpectedly jumps higher
  • A “special tax” is declared
  • A major bank fails
  • A bank holiday is declared
  • A pension fund can’t pay its obligations
  • A state can’t pay its bills and declares bankruptcy
  • Capital controls are instituted
  • A gold ETF is hit with fraud
  • A gold dealer fails to make a Comex delivery
  • All gold buying is temporarily frozen

We can hope none of these things come to pass, but it’s almost certain that several will. Your investment portfolio and even standard of living will be threatened.

It’s nice to know that gold, held in physical form and under our control, can shield us against not just high-impact events of lawlessness, but a world where fear is growing, uncertainty is rising, and risks are elevated.

Is your portfolio a soft target? Or do you have financial preparations in place to withstand whatever crises may personally impact you?

“This is the overnight revaluation I’ve been talking about…” — Mike Maloney

You go to bed one night and you wake up the next day and your world has changed. It happened just recently with the British Pound. In Mike’s latest video, he shows how fast people who hold currency can lose their purchasing power.