As I sit down and write this post, Ukraine is on the brink of war.
It’s unclear whether this will be a civil war, or will involve Russian troops crossing the border and invading Ukraine itself.
It is putting its faith in gold.
First, it has shipped much of its considerable gold reserves out of the country, to keep those gold bars safe from invading forces.
Second, it is using part of an IMF loan to buy more gold. In fact, it is spending $1 billion on gold.
In the words of National Bank Chairman Stepan Kubiv:
“Over $1 billion from the first portion of the loan will go into the gold and currency reserves of Ukraine, which will strengthen the financial system of the country. The remainder will go to the budget to stabilize the macroeconomic and financial situation in Ukraine.”
Like I said, countries faced with the threat of invasion have been doing this for centuries. In the run-up to the Second World War, hundreds of tons of European gold crossed the Atlantic for safekeeping in the U.S.
Ukraine is simply following the same path. And it is buying more gold at the same time.
There is a lesson to be learned here.
The world of global finance is considerably different than it was at the time of the Second World War. Today, money is digital. It flies around the world at the speed of the Internet. Money can be moved from one country to another with the click of a button.
But still…Ukraine is buying gold.
Why? Why spend a billion dollars on gold…on what John Maynard Keynes described as a “barbarous relic”?
If gold is a relic from the past, why is it still so important to nation states today?
Because it is physical, and real. It is a hard asset you can touch. But unlike other hard assets – like houses or farm land – gold is also portable. You can carry a fortune in a briefcase.
This is why – even today – nations, banks and individuals choose gold as the ultimate store of wealth during bad or uncertain times.
Digital assets can be frozen. We know this because the U.S. is punishing Russia right now by freezing the assets of some of its banks and high-wealth citizens.
But gold cannot be frozen. For as long as you keep it stored in a safe place, it is yours. It is a store of wealth outside of the global financial system.
Whatever the advances in technology, it is recognized that gold is an asset and store of value that cannot be frozen, tampered with or devalued through the world’s computer systems.
Gold is real. And you should follow Ukraine’s lead in securing part of your own wealth by buying and storing physical gold.
About the author: DH Kenrick is a student of world economics and a committed gold enthusiast. Follow me on Google+
You can also follow Owning Gold on Facebook…