The Power of Gold in Times of Crisis

While physical gold is a well-known safe haven asset which investors flock to in times of market turbulence as a way of protecting their wealth, gold is also the ultimate asset to own and possess in times of crisis and emergency. These crisis situations can range from episodes in which fiat currencies collapse, to times in which gold buys safe passage across international borders, and even to periods in which only gold can bail out and rescue an entire nation. Sometimes gold even ensures self-survival and can literally be the difference between life and death.

History is replete with examples of gold being the ultimate asset in times of crisis and desperation, where time and time again, gold comes to the rescue and provides its holders with choice and freedom, choice and freedom that are not available to those who do not hold gold. This is not ancient but recent history, history in our lifetimes and in some cases even events ongoing now.

In this article we will look at some examples of gold in crisis, which while distinct to their times and places, contain commonalities, and which illustrate why gold is the only monetary asset that is universally trusted and recognised in crises, why gold is the only asset with universal liquidity and purchasing power during emergencies, and in short why physical gold is the only asset that can truly provide economic freedom and liberty when confidence in all else fails.

Distinctive slim gold bars from Vietnam’s Kim Thanh refinery, 1 tael

Gold as a safe passage for refugees from Vietnam

Following the Vietnam War, the Fall of Saigon, and Vietnam’s reunification in 1976, the southern part of Vietnam experienced a mass exodus of people, driven by a crippled economy, government discrimination and forced departures. Hundreds of thousands of ethnic Chinese and Vietnamese fled to other parts of Asia over both land and sea, an exodus which peaked in 1978-1979.

Those refugees fleeing by sea sometimes did so in large ships organised by people smugglers and often with the support of the Vietnamese communist government. An exit route on these ships was only assured for those who could pay these government officials and people smugglers what they demanded. The price for safe passage? Between 10 and 12 taels of 24 karat gold for an adult and half that for a child (1 tael = 1.2 troy ounces).

This gold payment was often in the form of traditional Kim Thanh gold bars, two slim large bars and one small bar wrapped together in rice paper, making a total weight of 1 tael. While these bars were popular in Vietnam, they were also recognised and accepted across all of South East Asia as portable wealth and so were monetary liquidity for the region.

From Vietnam to Hong Kong – Skyluck, the ship that smuggled 2,600 refugees. Source: SCMP

Although some Vietnamese and Vietnamese Chinese had their stored wealth in the form of these bars, many didn’t and so an entire gold tael banking system arose in Saigon in the 1970s allowing those fleeing the crisis to convert their belongings into gold. Those without tael gold bars paid for their passage in gold ornaments.

Refugees also took with them emergency money in the form of gold tael bars as well as jewelry such as small gold rings and gold wedding bands, all of which could be sold in emergencies. For example, after one giant ship of refugees, the Skyluck, arrived in Hong Kong in 1979, Vietnamese gold tael bars began popping up in the Hong Kong gold market.

Refugees from Vietnam who took huge risks sailing into the unknown to a better life could only do so because they had physical gold to buy safe passage, and because gold is a universal money that can be sold almost anywhere to help finance a new life abroad.
South Korea – Gold mobilization to pay external debt

As the Asian financial crisis spread to South Korea in late 1997 and torpedoed the country’s financial markets, it triggered a currency and banking crisis that decimated the Korean won and pushed the country to the verge of bankruptcy. Rapidly burning through its foreign exchange reserves and with international lenders circling, the government called in the International Monetary Fund (IMF) in December 1997 with a multi billion rescue package to bail-out the country’s spiralling external debt. At that time the largest ever IMF bail-out, the rescue came as a massive blow to the Korean nation both economically and psychologically.

Embarrassed and at a loss to understand how a star Asian tiger economy could implode so quickly, the South Korean nation then did something quite extraordinary and spontaneous by collectively confronting the adversity via the mobilisation of a patriotic gold collection campaign to help pay off South Korea’s foreign debts.

Initiated by the Korean broadcast networks and the large Korean banks, and coordinated by the industrial conglomerates such as Hyundai, Daewoo and Samsung, the ‘love of nation’ and ‘national debt repayment’ campaign saw Korean citizens selling their gold, but at prices far lower than market value. The gold collected was then melted into gold bars and sold on the international gold market.

With gold held widely by Korean households in many shapes and forms, long lines formed outside the nation’s banks and collection points of Samsung, Daewoo and Hyundai as Koreans swarmed to sell everything from investment gold coins and bars to gold rings and gold bracelets, and from gold medals to gold trinkets. All to fix their ‘broken economy’. The items sold even included brides’ gold jewelry, gold doljanchi presented to babies on their one-year birthdays, retirees’ gold keychains and gold watches, and the solid gold buttons found on traditional Korean clothing.

Kim Daejung, then president elect, donated his gold in Sotuh Korea’s gold campaign

And it wasn’t just ordinary citizens who took part in the campaign. Celebrities and politicians led by example. Korean baseball star Lee Chong-bum brought in 31 ounces of gold to his local bank in the form of gold trophies and medals. President-elect at the time Kim Daejung walked into a bank in Seoul donating a miniature golden tortoise and four golden good luck keys. Said Daejung:

”When I think of the patriotism, my eyes almost become wet with tears of appreciation. I promise that my new government will do its best to pull the country out of its current crisis.”

Running over four months from January to April 1998, the gold collection campaign collected 227 tonnes of gold worth $2.13 billion, with 165 tonnes alone collected in the first month January. The collection involved 3.5 million households, representing 23% of the nation’s 15 million households and 10% of the gold held in South Korea at that time, and the gold collection drive helped restore the nation’s credibility abroad, thereby allowing South Korea to fully repaid the IMF-backed debt in August 2001, three years ahead of schedule.

With gold playing a strong role in Korean society, South Korea’s population knew instinctively that in the midst of a dark economic crisis, only physical gold could help rescue their economy. And so they collectively mobilised to donate and sell the one true asset that had retained its value in Korea’s financial crisis, their gold.

- Source, Bullionstar