Asset Strategy, Market News

What Does the Hacking of the SEC Say About the Vulnerability of Stocks – and What About Gold?

Gold Alliance disclaimer

The news was like a punch in the gut to investors around the globe. The SEC, the top securities regulator in the United States, announced that they’d been hacked in 2016, exposing private information from millions of investors and giving hackers the ability to significantly exploit trading.

The SEC’s announcement came directly on the heels of a data breach weeks earlier at one of the three major consumer-credit-reporting firms, Equifax, causing major concerns that the pillars of the US financial system (and, more specifically, their computer systems) were much more vulnerable than anyone thought.

Even more disquieting for investors is the fact that, although the hacking of EDGAR (the SEC’s Electronic Data Gathering, Analysis, and Retrieval system) had occurred in 2016, it wasn’t until months later, in 2017, that regulators launched an investigation, fearing that illegal trading may have been the result of the hack. The Equifax breach was just as concerning, given the fact that it exposed personal information from over 143 million Americans.

Worst of all, however, is this: the Government Accountability Office, in a 27-page report, warned the SEC that their system was vulnerable, finding that their system “limited the effectiveness of the SEC’s controls for protecting confidentiality, integrity, and availability.” So, the SEC was warned and, basically, did nothing.

Stolen Information was likely used to make trading choices

The underlying problem with these breaches and hacks—besides the fact that they exposed just how imperfectly the SEC and Equifax handle sensitive data—is that the stolen information could be (and likely was) used to make illegal stock and bond trades. How? Because hackers now had advance knowledge of the earnings information from a wide variety of traded companies before said information was made available to the public.

This completely upsets the playing field, eroding faith in the stock market as a viable means for small-time investors to gain and build wealth since the biggest, most powerful companies are now vulnerable to hackers who can exploit their data.

These hacks also create great concerns about the safety of our banking system. What will prevent hackers from “flattening” bank accounts of US citizens, especially now when they know every Social Security number, previous addresses of the bank account holder, and his/her answers to any type of security question?

Gold is looking more superior to stocks every day as a means of building wealth

Since1971, the value of gold has outpaced both the S&P 500 and the Dow Jones Industrial Average stock indexes. Physical gold can’t be hacked like software, so it’s not exposed to counterparty risk of software failure or corporate financial failure. Also, since gold’s price depends more on general trends in the economy and on geopolitical factors, the schemes and insider trading that oftentimes affect the financial well-being of corporations being traded on the stock market are nonfactors.

In short, while gold “just sits there,” you always know that whatever happens, it will still be there, so it’s actually one of the best ways for a small-time (or big-time) investor to protect themselves against hackers, stock crashes, and inflation while protecting their wealth year after year and making gold one of the finest assets in any portfolio.