The past year has seen great turmoil and misery all over the world because bankers were given unbridled lending powers. Now, because this has happened once, it's possible for it to happen again. I believe things could get a lot worse than we have seen since the Great Depression. The problem with most of us is that we have all our savings stored at the bank. Unfortunately its all taken for granted that the banks/ATM's will be open for business tomorrow. But what if they weren't?

What if they were closed for several months? Most of us only hold enough cash on us to last a few days. What then if the banks never open again? There have been precedents for this happening in the past. From 1929 to the late 30's, millions of people lost their life savings because there was a run on the bank (most people don't know this but banks hold NO WHERE NEAR the amount of cash that people put into the bank, so if everyone tried to collect their money at the same time, the bank would have to close as there wouldn't be enough money to go around) and the banks had to close. Then came hyperinflation. Any cash people were holding became worthless. Germany suffered the worst, at one point costing Billions of Marks for a loaf of bread. That's where gold comes in.

Hedge Fund

They say that whoever holds all gold holds all the power. There is NO better way of preserving your wealth than by holding gold. Let's say you have $1000 in paper currency and $1000 worth of gold. Now, there is a global financial crisis and massive hyperinflation. That $1000 in paper currency has now lost all its spending power. The $1000 in gold however, would maintain its spending power because the price of gold would also go up as the dollar fell.

For a hedge fund,I would recommend you buy bars of gold. Obviously only buy what you can afford. If you are buying as a hedge fund, it doesn't really matter what form your gold takes. Stay away from the more expensive numismatic coins/bars as they have far too high premiums.

To Trade

If things got so bad that your dollars/pounds/yen lost their spending power completely and all the banks closed then commodities would then become the new currency. Food, water, and ammunition would be on the top of everyone's lists of course, but if you were to offer someone a shiny one ounce gold coin, who wouldn't accept it? Even today, gold psychologically fascinates people and I'm sure it will for the next two thousand years.

If you are buying to potentially trade with in the future I recommend buying government-issued coins such as the American Eagle or Canadian Mapleleaf coins. Its important people trust the bullion you are holding is genuine and that's it is gold. I live in the U.K, so were I to buy to trade, I'd buy gold Sovereign coins as they are widely recognized. You wouldn't want to be trading a loaf of bread with a 1Oz gold bar, so always stick to smaller denominations/bar sizes.

I'm a great believer in cycles, and though things might get worse for the world, it always returns to balance in end. Hopefully I have inspired you to go get a little gold yourselves, even if you never need to use it.

Find out what started today's financial crisis via Financial Crisis and Finance