Revisiting a Hard Lesson on Counter-party Risk

For those precious metals investors who learned nothing from MF Global, check out this post from Zerohedge.com:

"On Monday, the company, Amber Gold, Sp. z o.o., which sold a gold-indexed investment of its own design and offered higher interest rates than banks, said it was halting operations. It pledged eventually to repay about $24 million it said it owed to roughly 50,000 clients in Poland.
Amber Gold's 28-year-old founder, Marcin Plichta, who has publicly acknowledged past convictions for misappropriating funds, couldn't be reached to comment."

Sure, this was Poland, and the guy had a questionable past.  If we get right down to it, how different is that from the U.S. and Jon Corzine?

Bottom line?  One of the greatest strengths of gold is that there is zero counter-party risk--IF YOU HOLD IT YOURSELF!  Sure, "paper gold" is convenient, but is it worth it?

Take Possession of Your Gold and Silver

The following is from another fascinating post on Zero Hedge:

"While Gerald Celente is crying about his lost six-figure account, Bill Fleckenstein also has personal money tied up with MF Global. He is hopeful that he will get it back but is critical of the authority figures involved. Celente does not expect to get all of his money back. Ann Barnhardt of Barnhardt Capital Management has shuttered its operations after six-years in the business. She did not feel like her clients’ funds were safe in the futures and options market any more. Lawrence Lepard, who posted on Zero Hedge, wonders if the MF Global failure was a hit job done by the Fed. My point is not about who is right or wrong . . .

The author, in addition to coining the phrase "fractal in a frying pan," makes the point that a global banking meltdown we are all at great risk of losing assets we believed to be safe.

I have no idea who first said that gold has no counterparty risk.  It's quite likely that I first saw the idea expressed by Bill Bonner in his Daily Reckoning.  In any case, it's probably worth considering that idea at least one more time.

Insurance contracts, stocks, mutual funds, ETF's, CDs, annuities, bonds, dollars, and a host of other investments all share one potentially fatal flaw.  Each is only as reliable as some party on the other side of the equation.

A gold or silver coin in your hand is an entirely different matter.  While it's true that you may need another party to trade it to, thousands of years of history suggests that your gold or silver coin will remain a safe store of value.

And please note that I did say "in your hand."  Iin good times or even fair times I have a reasonable amount of faith in GLD, SLV, Perth Mint Certificates and the like.  It seems fairly likely, though, that we have bad times ahead.  Plan accordingly.