Owning gold – a small downside with a huge upside.

When you invest money there is usually a reasonable upside and a huge downside.

Just ask anyone who invested their savings in Enron or with Bernie Madoff. Yes, those are extreme examples. But there are thousands of other cases where honest people invested their savings in the hope of a reasonable growth in their savings, but instead lost it all.

It was the same with real estate. People invested what they had, borrowed heavily, and hoped that their home would grow in value and cover their debts.

But that didn’t happen. Instead they faced foreclosure. They lost everything.

Even of you play it carefully and invest in mutual funds, your upside is small. The days of making millions through the miracle of compound growth are long behind us.

And how about your money in the bank, earning less than one percent in interest? There is no real upside once you factor in inflation. And as the citizens of Cyprus will tell you, there is a huge downside when the government decides to drop by and take a chunk of your money.

And what if the unexpected happens – if it really is unexpected – and the banks crash again? And what if they are bailed out again with taxpayer money?

It’s all downside.

This is why it makes so much sense to buy gold.

With gold you have a small downside, a small risk. As we have seen over the last year, the price of gold isn’t on a constant upward trajectory. There are corrections, the price goes up and down. But gold will never lose all of its value, or even a significant part of its value.

People have fought and died over gold for centuries. They steal it and they store it. Central banks hoard it as a final store of value. Billionaires do the same. Gold will always be valuable.

So yes, you have a small downside when you own gold. You have to anticipate a few ups and downs.

But what about the upside?

Gold has a huge upside, particularly if you view the current financial system as being both vulnerable and fragile.

If you don’t hold much trust in the MBAs and economists who manage the banks, then it’s hard to trust in the value of the money you hold in the bank or in investments.

We have seen how the system can break and come tumbling down. And not much has changed since 2008 to persuade us that it won’t happen again.

If it does happen again, and if it is worse than last time, that’s where you will see the upside in gold, as its value rises dramatically.

Bankers are playing a game, and they are paying it with our money. They are always the winners, with their fat bonuses, but there is very little chance of a significant upside within that system for the likes of you and me.

That’s I prefer to put my money in gold. It is outside of the financial system, it is outside of the banks.

And if things do go to hell in a hand basket, the fast-rising value of your gold will protect you and keep you safe.

That’s why I buy gold, and I think you should too.

About the author: DH Kenrick is a student of world economics and a committed gold enthusiast. Follow me on Google+

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