In the world of finance and economics, improbable doesn't always mean impossible. Catastrophic events that were thought to be outside the range of possibility do happen.

These rare occurrences are called "Black Swan" events. Coined by mathematician Nassim Nicholas Taleb, the term refers to the idea that just because we haven't seen something, doesn't mean it can't exist, i.e., even though we've only seen white swans, doesn't mean black ones aren't out there.

Right now, analysts are suggesting that a black swan event is looming over the horizon. They don't know what it is, only that the impact will be great. And that if there is an affordable hedge against such an unlikely event, then you should consider buying it.

Understanding a Black Swan

Picture a bell curve — a hill-shaped graph that shows the frequency of things happening. The most expected outcomes are near the top of the hill (the highest part), while rare stuff is on the sides. It is like sand pouring out of an hourglass. Most it will fall right beneath the opening. As you move away from the center towards the edges of this area, you'll find less, and less sand scattered around. On the very far edges, those singular grains of sand, those are the black swans.

Taleb outlined three distinctive criteria for an occurrence to be classified as a black swan event:

Extreme Rarity: Black Swan events are not anticipated or expected. They lie outside the realm of regular expectations because they haven't occurred before or have occurred very infrequently.

Severe Impact: Black Swan events have a severe and widespread impact. They can result in significant consequences, affecting numerous individuals, systems, or markets, often with disruptive or catastrophic results.

Explanatory Hindsight: After a Black Swan event occurs, people often attempt to explain why it happened, attributing it to seemingly predictable factors. This is a retrospective bias, as Black Swan events, by their nature, are difficult to predict before they happen. ¹

Examples of black swan events are the 2008 collapse of Lehman Brothers that sparked a global financial crisis, the 2020 pandemic and the September 11th World Trade Center attacks. 

While a black swan event can come from anywhere, three sectors are currently standing out.

Banking Industry

The banking crisis of 2023 has already been characterized as a black swan event. Rapidly rising interest rates set regional banks reeling. After the collapses of Silicon Valley Bank and Signature Bank, First Republic Bank became the second-largest bank failure in U.S. history. It was shuttered by regulators and sold to JP Morgan Chase.

In hindsight, the causes seem perfectly clear.  But no one acknowledged the cracks in the system beforehand. The impact of asset liability management, the accounting treatment of held-to-maturity securities, and the deregulation of medium sized banks with less than $250 billion in assets were never addressed.

The banking crisis is still simmering. According to one study, almost 190 banks are susceptible to collapse. ² High interest rates sparked the crisis. And continuing high rates and tighter financial conditions will reveal more cracks in the system. A banking black swan sequel may be in our future if system breaks further as things worsen.

Real Estate

The real estate market is considered prime for a black swan event. Economists are worried because in 2008, the US housing market crash led to the Great Recession. This time, high mortgage rates, limited stock, and shrinking incomes could be the inciting causes.  

The Case-Shiller Indices are measures of residential house prices across the United States. These indices are designed to accurately track changes in the value of residential real estate over time.

In 2006, there was a 69-point difference between the Case-Shiller home price index and real disposable income. A difference in this size resulted in massive foreclosures and economic ruin.

Today, there is a 136-point spread. Experts calculated home prices were about 80% too high. In other words, there is a bubble ready to burst. Recession, rising unemployment, and soaring debt could force a major sell-off. The home market could become as dangerously unstable as commercial real estate market. ^3,4

National Debt

The astronomical U.S. debt is also considered a prime catalyst for a black swan event. Currently, the public debt is over $34 trillion. It was only $9.7 trillion in 2008 and just $345 million in 1968. The debt ceiling deal of spring 2023 will increase the debt by $4 trillion in the next few years. Economists are now predicting the debt could hit $50 trillion by 2030. ⁵

There is a lack of political will to fix the problem. Cutting the debt would require steep spending cuts, which are opposed by Democrats, and new high taxes, which are opposed by Republicans. Analysts think a black swan event in most likely to occur when a tipping point reached, and trust is the government’s ability to repay its debt is lost. Servicing the debt could eventually eclipse paying for national defense and Social Security. The soaring debt is bullish for gold as people seek a safe haven alternative to the dollar.

Hedging Against a Black Swan with Gold

Some companies are preparing for the devastating potential of a black swan event with gold. Palantir is a data analytics firm. They are known for working with the CIA and other government bodies. They purchased $50.7 million worth of 100-ounce gold bars to prepare for a black swan event.

Shyam Sankar, Palantir’s chief operating officer, said that the shift toward gold “reflects more of a worldview.” He continued, “You have to be prepared for a future with more black swan events."⁶

A Gold IRA is another way to protect the value of your portfolio from black swan events. This unique self-directed IRA gives you more control over your future by combining the wealth-building power of tax-deferment with the wealth protection features of tangible gold. To gain insights and information about opening a Gold IRA, individuals can explore American Hartford Gold reviews.

Conclusion

Allocating a segment of a portfolio to gold can serve as a hedge against future uncertainties, as gold tends to maintain its value during economic downturns. Gold and silver price charts allow you easily see up-to-date precious metal valuations. Black swan events emphasize the potential for unforeseen circumstances, making it prudent to secure a form of insurance, particularly when it's relatively affordable compared to the potential costs of being caught without it.
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Max Baecker is the President of American Hartford Gold (AHG), the nation’s largest retailer of precious metals. He leads American Hartford Gold’s mission to help clients achieve long-term financial security with physical gold and silver.

Under his guidance, American Hartford Gold has delivered billions of dollars’ worth of precious metals to thousands of satisfied clients. He has significantly expanded the AHG workforce and opened a third office in Florida.

Max's dedication to upholding American Hartford Gold's industry-leading standards is reflected in its accolades. American Hartford Gold has made four high ranking appearances on the prestigious Inc. 5000 List of America’s Fastest-Growing Private Companies. AHG holds an A+ Rating from the BBB and a 5-Star Rating on Trustpilot with thousands of 5-star American Hartford Gold reviews. American Hartford Gold is the only precious metals company trusted and recommended by Bill O’Reilly.

AHG offers investment-grade gold and silver coins and bars at competitive prices. Clients also benefit from its buy-back commitment with no back-end fees. To learn more, visit American Hartford Gold.

Notes:

1. https://corporatefinanceinstitute.com/resources/economics/examples-of-black-swan-events/

2. https://www.fairviewlending.com/4-banks-fail-close-to-190-banks-could-collapse-according-to-study/#:~:text=%E2%80%9CEven%20if%20only%20half%20of,to%20repay%20all%20insured%20deposits.

3. https://fred.stlouisfed.org/graph/?g=uMN2

4. https://mishtalk.com/economics/another-look-at-the-question-how-big-is-the-us-housing-bubble/

5. https://invezz.com/news/2023/05/31/gold-and-silver-prices-prepare-for-a-50-trillion-black-swan-event/

6. https://nypost.com/2021/08/18/palantir-buys-50m-worth-of-gold-bars-to-counter-black-swan-event/