Logic suggests that gold and silver prices would have received a permanent boost from the economic crisis in Cyprus despite its so-called settlement with some large investors reportedly set to lose up to around 40% or more of some of their deposits.
But what is logical about gold and silver price movements these days? It could still happen, but the propensity for people – even among the supposedly economically-savvy institutional investment and banking sector – to take at face value politicians’ statements that the crisis is over, just boggles the mind, if that indeed is what is truly holding gold and silver back!
OK, so Cyprus bankruptcy and its subsequent enforced departure from the Eurozone, have been warded off for the moment, but at what cost? Will we see a run on other Eurozone banks with big deposit holders looking for safer places to stash their cash? After all a precedent has now been set which could see similar measures imposed on other Eurozone insolvent banks – and in reality virtually all Eurozone banks are insolvent in real terms, and close to it even in banking terms given all banks need to operate on a fractional reserve basis.
Were major holders to withdraw their cash because they feel a bank is no longer a safe place to keep large sums of money, this could force a whole new swathe of banks into major difficulties beyond the power of the financial elite to rescue.
We have already seen an end to the decline in the major gold ETF holdings – a sell-off from which had been under way from the fourth quarter of last year and accelerated in February and March as safe haven investing seemed to be, for some, no longer necessary given strong stock markets – a move exacerbated by news that some mega investors, notably George Soros and Louis Moore Bacon, had reduced or eliminated their holdings in Q4.