To say we are living through interesting times at the moment would be a huge understatement. Two significant banks have collapsed in the last week, Silicon Valley Bank and Signature Bank, and the markets are in turmoil with trading in several significant banks stocks being halted after plunging at the US open. First Republic shares tanked by a massive 65% during morning trading before trading was halted.
These events are having repercussions globally not just in the US, where this situation is exacerbating pre-existing concerns regarding major banking institutions’. Troubled Euro bank Credit Suisse shares dropped more than 10% yesterday alone to an all-time low. This selling pressure on Credit Suisse shares was a direct result of the collapse of the Silicon Valley Bank, and has added to the existing crisis of confidence in the banking industry not just in the states but throughout the Western world in general.
Regional bank shares have dropped dramatically with investors’ and the general public’s confidence severely shaken amid contagion fears. The fear gauge operated by Wall Street known as the Cboe Volatility Index jumped to its highest figure in 5 months, a very clear indicator of investor sentiment.
The President has even weighed in on the situation vowing to hold those responsible for the Silicon Valley Bank [SVB] to account. Biden took to Twitter to make the following statement “At my direction Janet Yellen and my National Economic Council Director worked with banking regulators to address problems at SVB and Signature Bank. I’m pleased they reached a solution that protects workers, small businesses and our financial system’
There is certainly some evidence to suggest that senior staff at the SVB bank were aware that it was in trouble long before it became public knowledge, as they were selling off substantial shareholdings in the weeks and months leading to the collapse.
Edward Smith, a co-chief investment officer at renowned investment management company Rathbones commented “When the Fed raises rates so quickly, nine times out of ten it breaks things. We may see more corporate failures, we may see more regional banks go under”.
The Treasury have been forced to make a complete u turn on previous statements that there will be “no bailouts for banks” and instead stepping in to ensure that all deposits both from public and business depositors will be protected.
This from their recent press release yesterday “Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system”. Reading between the lines what this statement really means is something more along the lines of “Today we are taking decisive action to save the US economy from a catastrophic loss of public confidence in the banking sector which would have had dire consequences economically”.
So what does this mean for the gold and precious metals markets? Both gold and silver have increased in price the last few days for good reason. The question a lot of Americans will be asking themselves right now is “Can we trust the banking system? What happens if/when this situation happens again? Will the Government step in again to protect investors and businesses”? Judging by the queues at regional banks to withdraw money, the realization many people will be coming too is that their money is by no means “safe” in the bank, and if that is the case what do they do with that money?
This current situation could easily have spiralled out of control without the highest level of Government intervention, and a lot of people will be seriously re-thinking the security of their current investments and banked holdings.
There is a growing trend which will only accelerate in times of economic turmoil and instability of financially intelligent investors moving away from paper assets such as stocks, bonds and physical cash in the bank and towards stable physical assets either held in their own possession or in secure storage facilities [non-banking sector]. When you realize that someone else’s bad decisions can destroy your accumulated wealth almost overnight, it becomes imperative to have your wealth in stable “safe haven assets” under your own control. Primary among safe haven assets are physical gold and silver.
Investing in gold via a physical gold backed IRA account or buying physical gold, and storing it securely in a registered depository is very smart way of securing your wealth in a physical asset that typically performs very well pricewise in challenging economic times as investors move into safe haven assets to hedge against risk and preserve their equity until such a time as market conditions turn positive again.