The US economy is an utter disaster; that much is patently obvious.

The country’s infrastructure is crumbling and it is estimated that £1.6 trillion dollars needs to be spent just to stand still. It needs to fix its bridges, it electricity systems, its water systems.

And then there’s debt…

The country’s outstanding public debt is just under 9 trillion…

That works out at around $29,550 for every man woman and child in the country – and there’s no sign that this rate of borrowing will slow down. Indeed, the national debt has been increasing at an average of almost $1.4 billion every day for most of the last year.

Instead of sorting this out the government has been spending massive amounts of money on imperial warfare. There is no end in sight to this massive spend which would allow the country to use its resources to putting these problems right. There’s a chance the dollar may become as valuable as toilet paper.

And then there’s credit…

Alan Greenspan was warned what he was doing when he took US interest rates to a 50-year low of 1% in 2003. But he ignored it. Let’s face it, who wouldn’t borrow money when borrowing costs are almost free. This level was unsustainable and a series of 0.25% rises over the next few years has brought rates up to their current 5.25%.

Tut, tut Mr Greenspan

The collapse in US markets over the last week has all been down to bad credit. Greenspan’s credit bubble is now starting to hit home… The doomsters and gloomsters are sat at the sidelines cheering the events: we told you so, they said. Buy gold – or silver. It’s the safest asset class in a crisis.

So, if these people are right, there should be a rush to gold in times of turmoil. There has been a pretty tumultuous time in the markets over the last few weeks so shouldn’t the price of gold and silver be soaring?

Erm, no… on Thursday, the gold price saw its largest fall in two months. December Gold futures fell $13.50 to $672.80 an ounce. That’s around 2%. September Silver futures slid 46.5 cents to $12.705 – around 3.5%. Does that mean that the gold bugs are wrong..? After all, it’s pretty easy advice to continuously say “buy gold”. It’s hardly intellectually rigorous.

Ultimately, I believe that gold is a good insurance policy. There’s nothing wrong with buying gold. However, what we have seen this week appears to be investors with margin calls and massive losses elsewhere selling their gold to cover these margins and losses. Central banks may also be selling gold as a means to keep the price down and stop market panic.

In short, the financial markets aren’t quite as simple as some try to make out. They are a complex and confounding entity. That’s what makes them so interesting.

It appears that the short-term asset-class switch has been into treasuries. Treasuries offer income whereas gold does not. It is also expensive and difficult to store bars of gold, which adds to costs.

That said, however, I do believe that the gold and silver story are valid.

Head for the hills and eat squirrels?

Physical gold and gold stocks are a good investment – as part of a balanced overall portfolio. The world is changing rapidly and gold is a good insurance policy against financial turmoil, but I do not believe that you should sell all your assets, convert a lot into gold and move to Argentina with an AK47 (I heard this advice from one US investment advisor when I was in Vancouver a few weeks ago; and he was serious). That’s just foolish.

The same sort of people that have the “sell-everything-and-buy-gold” mentality are the same sector of people that have been saying for the last five years the UK housing market is going to crash.

As we all know full well, this has been the worst financial advice that anyone could possibly give to someone. If an investor believed that advice five years ago and sold their property they would now be effectively impoverished. It’s just nonsense – and anyone who has been giving that advice should be judged on their record.

Another thing I found out in Vancouver was that at the end of last year there were 2.1 million empty homes for sale in Florida alone – with more continuing to be built.

This explains elegantly why the US market is in a crisis. I would like those people predicting an imminent UK housing market crash to show me the UK’s empty houses; where are they? I don’t see them?

Half of Eastern Europe is moving to the London suburbs and we have a lack of housing as it is. A correction is an entire possibility, because no market goes up and up constantly forever, but the likelihood of an imminent crash is minimal in my mind.

However, should the housing market correct by 5% to 10% these UK property doomster will say “I told you so”. But even a stopped clock is right twice a day, isn’t it. No market ever goes up forever and such corrections happen all the time, but that is different to a crash. A crash is something much more serious.

So, is gold really an investment panacea in times of turmoil? Probably not, but as uncertainty kicks in, the energy crunch bites and the global population soars, the price is likely to go up. You should therefore be invested in gold. But I’d skip moving to Argentina and buying the AK47 if I was you… There’s just no need. P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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