- The chief economist of Degussa, Thorsten Polleit, points out that low interest rates, high debt, political instability and «the safety net of central banks» are the main dangers of the European economy
Low interest rates, high debt, political instability, «without forgetting the safety net of central banks», are the main dangers that threaten the European economy, according to Professor Thorsten Polleit, Degussa’s chief economist, company of reference in Europe in the investment gold trade. The German professor spoke yesterday morning about ‘The value proposition of gold’ at the headquarters of his company in Madrid and in the afternoon before a group of businessmen in Barcelona.
Polleit began his lecture by referring to the intervention of Warren E. Buffett at the annual meeting of shareholders of Berkshire Hathaway Inc in early May. In his introductory words, Buffett pointed out how important is the long-term vision to achieve the success of the investment and compared the performance of corporate actions (productive assets) with gold (which represents unproductive assets). 10,000 dollars invested in gold in 1942 would have appreciated only up to 400,000, according to Buffett, considerably less than an investment in shares. Statement that disagrees with the chief economist of Degussa, who believes that «we must first understand what gold is from the investor’s point of view. Gold can be classified as an asset, a commodity or money. If an investor considers that gold is an asset or a commodity, he can consider whether he should keep the yellow metal in his investment portfolio. «
The German professor points out that, when gold is seen as a form of money, Buffett’s comparison does not hold: «Each investor has to make the following decisions: (1) I have investable funds, and I have to decide how much I invest (for example, in stocks, bonds, houses, etc.) and how much I hold in liquid assets (cash). (2) Once I have decided to keep X percent in cash, I must determine which currency to choose: US dollar, euro, Japanese yen, Swiss franc, or gold money. » On the contrary, he believes that a comparison between the purchasing power of the US dollar and the precious metal would be necessary. This exercise would show that the latter, «in sharp contrast to the American currency, not only has preserved its purchasing power in recent decades, but has even increased it.»
He explained that the international fiduciary money system is getting «into increasingly difficult waters, mainly because the level of world debt, already vertiginously high, continues to rise», which, according to him, causes investors to be exposed to risks that have not existed in previous decades. On the contrary, he stressed that gold can help deal with the aforementioned risks. And he cited several qualities of the precious metal that have become increasingly important to investors: «it can not be devalued by the monetary policy of the central bank, it is immune to the printing of increasing amounts of money, it does not carry the risk of default or counterparty risk, while bank deposits and short-term debt securities can be destroyed by bankruptcy or debt restructuring. » In short, «your market value can not fall to zero.»
On the other hand, he pointed out that the fiduciary money feeds an incessant expansion of the State to the detriment of civil liberties, the increase of military interventions and wars throughout the world, the economic and financial crises with their adverse effects on the living conditions of many people and, «last but not least, the socially unfair distribution of income and wealth.»
Supported by data and graphs from Thomson Financial, the question was raised about how long the recovery will last, analyzed the trend towards lower and lower interest rates and how these support the global debt burden and increase asset prices. In this regard, he warned that credit default concerns have been left aside and addressed the situation of the European currency, which considers that it is at risk of being affected by the Italian crisis, «because the ECB will do everything that have to do, even buy debt from the Italian government, which would degrade the euro. «
In addition, he noted that people also want to have liquid means in the form of money to support unforeseen events. «Money is the most liquid, most marketable good. Anyone who has money can exchange it at any time, and thus take advantage of investment opportunities that arise along the way, «he explained.
And against the risks of the banking system, he argued that gold can be seen as a form of money that may even deserve to be called «the last means of payment». In this regard, he ruled that gold protects against devaluations and failure to pay: «Gold has proven to be the best money, has proven to be a better reserve of value than the US dollar or other fiduciary currencies.