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Banking Crisis in Cyprus Underscores the Need for Owning Physical Precious Metals
Saving in Cash Proves DISASTROUS This Week; Inside Story...
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Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.
Welcome to this week's market wrap podcast, I'm Mike Gleason
In this podcast I'd like to talk to you about securing your savings in these financially and politically treacherous times.
Right now, anyone who has deposits in a Cyprus bank can't be feeling secure. The small Mediterranean island nation is commanding the world's attention because of its banking crisis. Cyprus banks are closed this week as its depositors sit in limbo with the threat of confiscatory taxes or the possibility of default or nationalization.
The European Central Bank had demanded a so-called tax amounting to 10% of the value of depositor accounts at all Cyprus banks; this as a condition of providing the financially troubled country with Emergency Liquidity. Account holders revolted, and now officials are desperately trying to avert capital flight and bank runs that could potentially spread to continental Europe and beyond.
On Thursday, the Cypriot government submitted a bill to impose capital controls and moved forward with plans to nationalize pensions. Cyprus faces a deadline imposed by the European Union of Monday to come up with the 5.8 billion euros needed to meet the conditions of a bailout package.
The turmoil in Cyprus and fears that it could spread rattled equity markets and provided a boost to precious metals as safe-haven assets. On Thursday, gold closed above $1,600 an ounce for the fourth day in a row and recorded its highest close in a month at $1,615 per ounce. It has retreated slightly this morning but still holds above the $1,600 level. Silver has stayed mired in a lateral trading range over the past month, and it's below $29 per ounce once again this morning. However, if the white metal can find a bit of momentum and close above the $29.50 level, that would be a strong indication that this base-building consolidation phase has finally given way to a new near-term uptrend.
Precious metals prices can be volatile, no doubt, and that scares some people away from owning them. But too many safety-conscious savers and investors confuse price stability with security. The U.S. dollar and most major national currencies fluctuate very little in value from day to day. Yet over the long-term, they're virtually guaranteed to lose value. It's only a question of how much.
Even though precious metals can fluctuate greatly from day to day, over the long-term they retain their purchasing power. You can go back centuries, to virtually any civilized place in the world, and find the purchasing power of an ounce of gold holds remarkably constant.
In this digital age of fiat currencies and fractional-reserve banking, savings can be eroded slowly and steadily or wiped out all together in an instant. When you deposit cash into a bank, what you are really doing is becoming a creditor of the bank. The bank takes your deposit, loans it out, and gives you an IOU for the amount that it reports as your "balance." Since banks only hold a small amount of cash on reserve, if an unusually large number of depositors demanded their cash all at once, the banks would be unable to pay back those depositors. And the banking institutions would be exposed as insolvent.
In the U.S., your accounts are supposedly backed by FDIC insurance. But the FDIC is only equipped to handle incidental bank failures, not systemic bank runs. The bottom line is that when you deposit cash into a bank that is hypothetically insolvent at all times, a bank overseen and ultimately guaranteed by a government that is going bankrupt, you risk ending up like the customers of Cyprus banks. Their savings stand to either be seized by the government, or lost if the government allows the banks to fail, or depreciated severely if the banks get bailed out via inflation – that is, the printing of new bailout currency out of thin air.
Governments can't arbitrarily decide to shave 10% of the metal off of all gold and silver coins. Nor can their inflationary policies cause precious metals to lose purchasing power. Physical precious metals held outside the banking system is an essential component of financial security – now more than ever.
Even if the banking system was perfectly healthy and even if the threat of inflation was nonexistent, you'd still want to have access to some form of tangible wealth to protect you from digital threats. Things like identity theft and computer program malfunctions. This week, millions of customers of Chase bank temporarily saw their account balances fall to zero due to what Chase officials described as a "glitch" in the system!
These aren't the times to entrust all of your hard-earned wealth to the protection of banks and the government. These are times that call for a prudent allocation of physical precious metals for bulletproof wealth protection.
Well that will do it for this week's market wrap podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for your depreciating dollar... with speed, with accuracy, and with top notch service. Have a great weekend everybody.
Thank you for joining us for this edition of the Money Metals Exchange Weekly Market Wrap. Be sure to come back next week, and don't forget to subscribe to our weekly podcast through iTunes. For answers to all of your questions, or to discretely and securely buy or sell gold or silver coins, bars, and rounds, call 1-800-800-1865. Our knowledgeable and no-pressure specialists are standing by between 7:00 a.m. and 5:30 p.m. mountain time, Monday through Friday. Visit us at www.MoneyMetals.com or call 1-800-800-1865.