Live Metal Prices / oz
Gold: 1212.56 USD
Silver: 14.16 USD
Platinum: 839.00 USD
Palladium: 1110.50 USD
Rhodium: 2515.00 USD

Hedging Against a Debt Collapse with Gold

In the world of finance, there is perhaps no more hotly debate issue than debt.  One the one end of the debate are observers who worry about what a debt collapse could do to the global economy.  One the other end of the discussion are analysts who see debt as necessary for current growth.  Essentially, they place greater weight on current growth over future growth.

One thing both camps agree on – debt will eventually be a problem. 

The Debt Picture

Let’s look at the debt picture.  Before reviewing the figure below, which country would you guess has the highest debt per GDP (Gross Domestic Product) figure? 

Would you guess a European country has the highest debt to GDP?  Shaming European countries for debt is a pastime of financiers. 

What about an African country?  Growth has struggled to produce high-quality living standards for many in the African continent.  Did some turn too much to debt?

What about the United States?  Are they a guilty party to the debt contagion?

Perhaps an Asian country.  China has been growing quickly in recent years.  Is some of that growth fueled too much by growth?  What about Japan?  Business in Japan has been relatively weak for a while, perhaps they have turned to the debt markets too much to generate growth?

The chart above goes from light yellow to dark brown.  Countries with a dark brown coloring are the most heavily indebted countries.  The least indebted countries are lightly colored yellow. 

Curiously, the most highly indebted country is Japan.  The Japan debt burden is an enormous 253% of GDP. 

Which country is next in line?  Greece.  The problem child (well, at least one of the problem children) has a massive debt of almost 179% of GDP.  That will never be repaid.

Rounding out the most heavily indebted countries are Lebanon (149% of GDP), Italy (132% of GDP), and Portugal (126% of GDP). 

The Least Indebted

What about the least indebted countries?

The five least indebted countries are Brunei (2.8% of GDP), Afghanistan (7.6% of GDP), Estonia (9% of GDP), Swaziland (10.0% of GDP), and Russia (12.6% of GDP).  A complete listing of debt to GDP follows at the end of this article.

Why Does Debt Matter for Gold?

The question here is a direct investment question.  Why would individuals concerned about hedging a debt collapse be interested in gold? 

The answer is simple.  When debt becomes a large problem, every country that has a large debt problem will attempt to inflate their way out of debt.  Essentially, they will attempt to print currency to pay their debt bills.  This solution, of course, is not possible for many countries with their debts denominated in dollars, euros, or renminbi.  In these cases, the only solution is debt restructuring or default – both of which are usually terrible solutions for an economy.

In all of these cases, the hedge against problems is gold.  Gold hedges against inflation.  The precious metal also provides a backstop against deteriorating economies and stock markets.  Gold is, in essence, a safety valve – an asset worth diversifying into before trouble is at the door. 

Country

Last

Japan

253

Greece

178.6

Lebanon

149

Italy

131.8

Portugal

125.7

Cape Verde

125.3

Congo

117.7

Singapore

110.6

Bhutan

108.64

United States

105.4

Jamaica

103.3

Belgium

103.1

Egypt

101.2

Spain

98.3

Cyprus

97.5

France

97

Jordan

95.6

Djibouti

90.7

Bahrain

90.6

Canada

89.6

Mozambique

88.2

Sao Tome and Principe

87.5

Euro Area

86.7

United Kingdom

85.3

Yemen

83.5

European Union

81.6

Mongolia

79.4

Austria

78.4

Croatia

78

Sri Lanka

77.6

Zimbabwe

77.6

Mauritania

77.3

Brazil

74.04

Hungary

73.6

Slovenia

73.6

Ukraine

71.8

Ghana

70.5

Albania

69.92

Tunisia

69.2

India

68.7

Ireland

68

Bahamas

67.8

Belize

67.4

Pakistan

67.2

Gabon

66.5

Gambia

65.6

El Salvador

65.52

Angola

65.1

Costa Rica

65.1

Mauritius

64.9

Germany

64.1

Iraq

63.8

Morocco

63

Montenegro

62.5

Seychelles

62

Serbia

61.5

Vietnam

61.5

Finland

61.4

Israel

60.9

Sierra Leone

60.3

Suriname

57.48

Argentina

57.1

Kenya

57.1

Netherlands

56.7

Zambia

55.6

Malawi

54.7

Qatar

54.4

Kyrgyzstan

53.9

Equatorial Guinea

53.8

Sudan

53.5

Guyana

53.4

South Africa

53.1

Malaysia

50.9

Slovakia

50.9

Malta

50.8

Poland

50.6

Uruguay

50.6

Laos

50.03

Dominican Republic

49.12

Colombia

48.5

Tajikistan

47.8

Chad

47.6

China

47.6

Nicaragua

46.8

Azerbaijan

46.4

Mexico

46.4

Lesotho

46.3

Bolivia

45.7

Trinidad and Tobago

44.4

Fiji

44

Georgia

43.9

Iceland

42.3

Armenia

42.23

Philippines

42.1

Australia

41.9

Madagascar

41.9

Thailand

41.8

Namibia

41.5

Sweden

40.6

Rwanda

40.2

Latvia

40.1

Oman

39.9

Lithuania

39.7

Panama

39.2

Central African Republic

38.8

Macedonia

38.7

Uganda

38.6

Honduras

38.45

Hong Kong

38.4

South Korea

38

Tanzania

37.4

Senegal

37.1

Myanmar

36.75

Turkmenistan

36.5

Denmark

36.4

Norway

36.2

Cameroon

35.7

Cambodia

35.1

Romania

35

Czech Republic

34.6

Moldova

34.4

Ethiopia

33.5

Papua New Guinea

33.5

Haiti

32.6

Ecuador

32.5

Iran

32.1

Taiwan

31.2

Syria

30.01

Niger

29.7

Switzerland

29.7

Belarus

29.6

Liberia

28.8

Indonesia

28.7

Turkey

28.3

Guinea Bissau

28.1

Comoros

27.6

Bangladesh

27.1

Kuwait

27.1

Nepal

26.8

Bosnia and Herzegovina

26

Maldives

25.6

Peru

25.5

Guatemala

24.76

Ivory Coast

24.5

Burkina Faso

24.4

Paraguay

24.1

Chile

23.6

Luxembourg

23

Venezuela

23

Bulgaria

22.6

Botswana

22.3

New Zealand

22.2

Benin

22.1

Nigeria

21.3

United Arab Emirates

20.7

Eritrea

20.1

Togo

19.6

Guinea

18.66

Algeria

17.7

Palestine

17.5

Kazakhstan

17.4

Saudi Arabia

17.2

Republic of the Congo

17

Kosovo

16.63

Libya

16.5

Cuba

15.4

Cayman Islands

14.5

Burundi

14.4

Uzbekistan

14.1

Russia

12.6

Swaziland

9.95

Estonia

9

Afghanistan

7.6

Brunei

2.8