How To Protect Yourself From the Next Banking Crisis

Dave Russell, CEO, GoldCore Ltd

This year 88.5% of respondents to Goldcore‘s annual survey told us that they ‘view owning gold as a way to protect against bank failure.’ This did not come as a surprise. Many of our clients we speak to over the phone tell us exactly the same thing. 

As many Phoenix readers will recall, in 2008 the Irish banking sector went through a major crisis. The same pressures then resurfaced once again in 2010.  It was a time that no one wishes to see repeated. 

Overall, the cause of the crisis was down to catastrophically bad management and a confluence of events that no one foresaw. 

So what can we do to prevent another banking crisis? For those of us who aren’t regulators, bank managers or policy makers we can’t do much at all. So instead we need to work out what we can control. 

We want to prevent another banking crisis because we want to keep our money safe. We want to protect our wealth. Just as the saying goes ‘Don’t keep all of your eggs in one basket’, the same is true for your money – don’t keep it all invested in the same asset class. Diversify. And when we say diversify we don’t just mean use different banks, we mean diversify away from the banking system.

Gold is the ultimate diversifier when it comes to holding some of your wealth outside of the banking system. It provides peace of mind and security. By owning physical gold in the form of bullion, individuals can protect their wealth from disruptions in the financial system. This gives savers direct access to an asset that is independent of the banking system, offering a reliable hedge against systemic risks.

World Gold Council research shows that holding just 5% of your portfolio in gold can increase your risk-adjusted returns while reducing portfolio volatility. This simply means you may be able to increase your returns without exposing yourself to excessive risk. Clearly we all need to keep some money in the bank, many of us also own property and will hold stocks and shares as part of a balanced portfolio. But we know these all suffer when the financial system comes under stress, while the price of gold generally rises. 

So why not add gold to your portfolio, as a form of financial insurance that protects your hard-earned money. We may not be able to prevent another banking crisis but gold can prevent it from having the same impact on you as it did before.