Deposits at Bank of Ireland are soon to face charges in the form of negative interest rates after it emerged on Friday that the bank is set to become the first Irish bank to charge corporate customers for placing their cash on deposit with the bank.
BOI recently failed the EU stress tests and is seen as one of the most vulnerable banks in the EU – along with Banca Monte dei Paschi di Siena (MPS), AIB and Ulster Bank’s parent RBS. All the banks clients, retail, SME and corporates are unsecured creditors of the bank and exposed to the new bail-in regime.
The news came days after it emerged that FBD, one of Ireland’s largest insurance companies, have been moving cash out of Irish bank deposits and into bonds. Fiona Muldoon, the FBD CEO cited extremely low returns on deposits and bail-ins as the reason they are withdrawing cash from Irish banks and diversifying into corporate and sovereign bonds.
The monetary policies being pursued by the ECB and other central banks is making deposits, banks and the banking system vulnerable. Central bank policies are contributing to individuals and companies withdrawing deposits from banks which is making already fragile banks even more fragile. It is important to note that while there are “deposit guarantees” in place in most jurisdictions in the EU, these guarantees are only as good as the solvency of the nation providing them. Many nations in the EU remain insolvent or at least border insolvent. Thus, the deposit guarantee level of €100,000 in many EU states and $75,000 in the UK is likely to be arbitrarily reduced to lower levels in the event of deposit “haircuts” in the next banking and financial crisis.
Prudent retail, SME and corporate clients are realising the increasing risks facing their deposits. They can no longer afford to simply leave their deposits in a single bank account or indeed even in a few bank accounts. Diversification into other assets, including an allocation to physical gold, is becoming an important way to hedge the risks posed by negative interest rates and bail-ins.
Special Note – Despite having hung up my soothsayer suit for a couple years now, and also left working in the metals and mining industry for just about the same amount of time, I still do follow the gold price (and personally have placed much of my family wealth in it and related investment vehicles).
Please! This is not being written for you to do the same or anything remotely like what I’ve done. It’s being written because several old clients, readers and friends of the “Grandich Letter” (first published in 1984 but was retired along with my “mystic” outfits) still write me, asking for my latest thoughts on gold.
I’m not going to write some long dissertation but rather just highlight some of the reasons I personally believe gold is in the earliest stages of what can turn out to be its biggest bull market ever.
First, however, some absolute guidelines when it comes to owning gold and related investments:
Most in the financial services industry will never be a fan of it because ownership and potential gains, almost always fly in the face of the performance their livelihoods depend on – financial assets. Much of the financial media that makes their living reporting on what most in the financial service industry say and do, also have a negative bias against gold because it too, flies in the face of what ultimately rules the world they report on – financial assets. By-in-large, the financial services industry sells optimism (although on rare occasions, a CEO of a fledging stock dying actually can end up a positive for the share price) and gold has been something humans have sought for mostly “non-optimistic” reasons. Because of what I just mentioned, you will never see widespread bullish commentary for gold outside of the relatively small metals and mining industry, where almost all of the so-called “experts” have almost always been one-sided bullish on metals and mining shares. If and when you come to terms with the above, only then can you approach ownership of gold in a reasonable fashion and be able to judge its worthiness going forward.
Having said that, here are just a few on the many reasons why I’m so personally optimistic that the gold price (which already has performed handsomely this year) has so much further to go on the upside in the coming years ( I just hope I live long enough to see it – hoping 60 is the new 50-lol):
Having only been free trading for less than 50 years, Gold spent the vast majority of that time trading between $300 and $1,000 (and the majority of that period $300 – $500). When it finally broke above $1,000 for good, it ran to the $1,900 area by 2011. Like most investments, prices tend to come back towards the previous major top area (in this case, the $1,000 area) and then head up again, confirming the break above key resistance is now key support. This is pretty much what gold has done up until now (while causing severe pain to those of us who lived and breathe it. I left the industry for both my sanity and marriage – and not necessarily in that order!).
A major geographical shift has been underway of key ownership of physical gold from the West to the East. It’s hard for someone who hasn’t followed gold closely to understand the bullish ramifications of this; but let’s just say the “stranglehold” the paper gold market once had on the overall gold price has been removed. These gold bandits (I’ve called them much worse over the years) can now at best, attack gold for a few hours or at most a day or two; but see the losses they cause evaporate quickly (we had two such events in the last month alone and both times gold has snapped back). I know it’s hard to accept the decline from the 2011 top to the lows early this year as just a severe correction. However, if you can come to appreciate point #1 about its only break above $1,000 and the normal inevitable test of former resistance, you can come to appreciate the belief we’re at least heading back to the highs of 2011 – and sooner than most think right now. If you ever thought $2,000, $2,500 or even $5,000 was truly possible (and not just some number used by goldbugs to sell their wares), this severe correction was both necessary and healthy (even if it took years off my life and sleeping on the couch more than I had to if I owned general equities). The bullish fundamentals for gold ownership grow almost daily. Again, I could write pages of why, but I will just point out a few key ones:
The severe correction literally wiped away every ounce of bullishness. It had come to last one out of the bullish camp, please turn off the lights. While bullishness is off the canvas now, we still see little or no interest in gold overall while its main rival, financial assets, are now in a full bullish blow-off mode. Being a supporter of gold is like being the “Maytag Repairman” when compared to what most investors and professional are loaded to the gills with (financial assets).
2 – We’re now just about 180 degrees where we were in 1980. Back then, financial assets were called “dead” and investment “war rooms” preaching gold ownership were widespread. Gold is the ultimate contrarian play and on a valuation basis compared to stocks and bonds, relatively cheap.
3 – Whether its debt bombs all around the world, paper currencies being debased faster than “Grant took Richmond”, or Central Banks getting ready to launch funny money from helicopters in a last futile attempt to correct their quantitative easing failures, take your pick on the inevitable ignitor that will lead to a blow up of financial systems. It’s not if, but when!
I can go on and on why this former “soothsayer” believes gold is going much, much higher. I would suggest if you’re serious and want to consider it as part of your portfolio, we’re coming close to a break out point where if and when it occurs, I suspect an acceleration to the upside will take place.
This commentary is an excellent piece on that point fast approaching.
While I don’t recommend investments anymore, I believe I can still speak of worthy people to consider. Sadly, in the world of metals and mining, Mark Twain was basically right when he said a gold mine is a hole in the ground with a liar on top of it.
I can make mention of a few people I still trust after all these years in and around metals and mining:
If you followed me for any length of time, you know my great distaste for almost all TV “Talking Heads”. However, there’s one commentator who appears daily on national TV truly worth his weight in gold. He’s Guy Adami. Do what it takes to hear what he has to say, but it’s okay if you keep your finger on the mute button when others speak on the panel he’s on – I do! Most newsletter writers in the metals and mining “racket”, have either always been one-sided bullish, or the poster child for the Mark Twain saying. However, one commentator has been a truly honest and Godly man for as long as I’ve been in and around the financial arena, Mr. Jay Taylor. He may be a goldbug, but his honesty and integrity is second to none. Two financial advisors with proven metals and mining experience worthy of consideration are Ben Johnson and his partner J.D. at First Northwest Securities and partners Lou Scatigna and Marty Saltzman of AFM Investments. Both firms have around 40 years of experience. I hope this satisfies my old readers, friends and clients. Buckle up. It won’t be a straight ride up and forces still remain who don’t want to see gold rise. However, I never been more convinced on any path of any investment I followed for over 30 years (that is likely a sell signal to some but it is what it is).
Thanks to http://www.petergrandich.com/gold-the-mother-of-all-bull-markets-has-only-just-begun/ for this post.