New Bank Failures Accelerate Global Gold Rush

First Republic becomes second-largest U.S. bank failure

Bullion.Directory precious metals analysis 01 May, 2023
By Peter Reagan
Financial Market Strategist at Birch Gold Group

This should come as no surprise to regular readers – I discussed the contagion spreading across the banking sector (and named First Republic as a particularly troubled institution) back in March.

So this isn’t a surprise, but is it still worthy of concern?

I’ll let The Wall Street Journal answer that question for us:

Three of the four largest-ever U.S. bank failures have occurred in the past two months.

Silicon Valley Bank (SVB) was the second-largest bank failure in U.S. history, but only held this dubious honor for about six weeks. That’s how fast the dominoes are toppling…

First Republic had some $13-$20 billion of the $620 billion in unrealized losses currently hanging over the U.S. banking sector. Which means we’re going to turn over a whole lot more rocks before this banking crisis is really over.

That’s just my theory, though – remember, Janet Yellen already told us:

I can reassure the members of the Committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them, this week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.

Hmm. Maybe she meant that “our banking system remains sound” except for First Republic?

Of course she didn’t! Yellen knows that, like unicorns and Tinkerbell’s ability to fly, the entire financial system only works when we have total, unconditional faith in it.

And when that faith is confronted with gaping holes in bank balance sheets, it fails. The bank collapses and “our country’s bailout culture that privatizes gains while socializing losses” steps in…

In case this is unclear, “socializing losses” means making everyone pay for them.

Will First Republic be the last bank to fail this year? Almost certainly not – remember, there’s another $600-ish billion in unrealized losses out there.

Meantime, prudent folks are looking for a true safe haven for their money that’s completely outside the teetering banking system. And one analyst predicts that’s about to send gold’s price surging…

Expert: $2,000/oz gold is just the beginning

James Henry Anderson, a precious metals senior market analyst, has more than just an optimistic forecast surrounding gold’s long-term standing. In an interview with Investing News Network, Anderson went pretty deep into gold’s growing role in a quickly-changing world.

Anderson believes it’s going to be difficult to remove the dollar from its current role as the unit of measure for commodities. Instead, Anderson expects countries that have been passive participants in global economic matters to demand their place at the table. Anderson expects we’ll need to get used to a truly multi-currency financial system in the years ahead.

He points out that gold in U.S. dollar terms represents only a small fraction of the overall gold trade. That means it’s a mistake to fixate on the price of gold when measured in dollars.

The more we examine how gold performs in other currencies, the more we learn how well it has been performing as both a growth asset and a store of value.

Anderson says that gold simply can’t be viewed as expensive around $2,000, nor that pullbacks to $1,900 or $1,800 should be important to investors. Gold is to be approached as a five-to-ten-year investment at minimum. Over that timeframe, he believes gold can’t disappoint.

He shared some insider details from his firm. In the wake of the SVB collapse, bullion dealers were overloaded to the point of turning away business…

It’s not impossible to buy physical gold and silver right now, but Anderson said market participants may not be able to find the products they want, or may face longer wait times. They may also encounter minimum spend levels when purchasing.

In the long term, he sees a move toward a scenario where it does become harder to buy physical precious metals.

“There’s going to come a time where bullion will essentially disappear, and the only options you’re going to be left with in terms of getting some type of allocation … to the spot price is you’re going to have to go to underperforming derivatives, unsecured derivatives — things that will not perform as well as bullion, and are not as safe as bullion,” Anderson said.

He’s right about this! We’re seeing it, too… Premiums are rising, and as time goes on, bullion products will very likely become harder to obtain. Global mints are operating at capacity and setting sales records, yet the appetite for gold (from both private investors and global central banks) seems insatiable. Birch Gold hasn’t yet had to turn away customers.

Even so, he’s right to say global bullion supplies are tight. I expect they’ll get tighter.

Although he didn’t make specific price targets, he did say:

This is just starting. The idea that gold at US$2,000 (per ounce) is like some high, crazy price – people are nuts. If you think that’s high, you’re gold illiterate essentially. You don’t understand what game we’re playing.

I concur wholeheartedly.

From Maine to Zimbabwe, gold isn’t just money, it’s the money of choice

Maine held a hearing last week over its Senate Bill 734, first introduced on February 16, which would allow the state treasury to invest in precious metals in order to shield funds from inflation. Curiously, the bill is facing opposition from the Maine Office of the State Treasurer, which doesn’t believe gold and other precious metals are safe-enough investments.

Stifling efforts to return to sound money isn’t exactly new, as JP Cortez noted in a testimony over a similar bill in Wyoming that no bills of this kind have been passed since 2019, when they began gaining traction. In that time, gold in U.S. dollars has almost doubled, and inflation only seems to be getting worse.

Professor William Greene’s paper published by the Mises Institute sort of explains why these efforts are expected to be undermined politically. They’re an application of Gresham’s law in reverse, where good money will drive out the bad. Re-monetizing gold and silver will lessen dependence on the U.S. dollar and its popularity, eventually either limiting or subduing the Federal Reserve’s influence.

Zimbabwe is going about things in the less-than-optimal Texan way, trying to introduce a digital currency backed by gold and treated as legal tender. Zimbabwe finds itself in an even less favorable position: to them, the U.S. dollar is still a form of safe-haven. Whereas one U.S. dollar could have netted you around 150 Zimbabwean dollars a year ago, it goes for 1,000 these days. Everyone is obsessing over the U.S. dollar’s hyperinflation, but the Zimbabwean currency has somehow found a way to erode 10 times as much in a year.

What will happen, then, when the Fed reverses course and the U.S. dollar index really starts dropping? It’s questions like these that wouldn’t need to be answered if we had true sound money at the center of global finance. Now, if only efforts to introduce it weren’t being paired with the ever less popular CBDC enrollment…

Silver to hit $30 this year?

Two things from Anderson’s mentions about silver above that stood out were that it could drop to as low as $18, and that it will grow to become a true store of value once again. These almost seem to oppose each other, yet price volatility and silver go hand-in-hand.

ABC Bullion’s analysts believe that silver could hit a nine-year high by breaching $30 this year (if not higher), driven by both questionable physical supply and severe inflation. The analysts pointed out that silver historically posts an annual return of around 20% during periods of high inflation.

The bullish forecast for silver truly cements itself based on that alone, as it isn’t quite clear how and when we’ll be moving away from high inflation. The Federal Reserve will, by most accounts, reverse course and slice interest rates this year. This would weaken the U.S. dollar on its own, but when we understand that more money printing is already underway, we start to see the gloomy outlook for the greenback.

Nicky Shiels, MKS PAMP’s head of metals strategy, said that there’s a shortage of silver in New York’s and London’s hubs. This ties into paper silver not being on solid footing and expectations that derivatives could come under pressure if this gets exposed further. Shiels, however, says that the silver industry could post a deficit of up to 100 million ounces this year, strongly driven by rising industrial demand along with investor buying.

This article was originally published here

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