Reasons to be cheerful despite the crisis ahead – starting with big savings on gold bullion...
WITH the US markets effectively closed Friday as Thanksgiving ran into the weekend, Asian and European trade was light across all financial markets, writes Adrian Ash at BullionVault.
That's typical for the holidays, and it invited the sharp drop in the Dollar (and coincident rise in Gold Prices) on Friday afternoon here in London. The world looks to US trading for direction short term, as it remains the biggest and most liquid capital market. And further out, gold and silver have plainly been moved more in 2012 by US monetary policy than European debt crises.
But that doesn't mean savers and investors stuck here in the Old World shouldn't be thankful for precious metals today.
The International Monetary Fund gave a little ground on Greece's debt woes overnight. Rather than demanding a cut to 120% of annual economic output by 2020, it now says Greek debt will be "viable" at 124% of GDP by then. A grand gesture perhaps from bean-counting Eurocrats, but Athens is starting from 160%. And history says "viability" comes much lower still.
Time and again, according to economic historians Reinhart and Rogoff, a debt-to-GDP level of 90% comes to swallow the economy whole. That just happens to be exactly the level hit by the 17-nation Eurozone – as a whole – this autumn.
How long til meltdown? By themselves, Austria and the Netherlands looks safe for now, but Germany is only just behind the non-Euro UK at 82%. Big spenders France and Belgium help drag the currency zone's average debt-to-GDP ratio higher, but Italy really does the damage.
Already, Rome owes that same 120% of GDP which the IMF wants Greece to achieve 8 years from now. A cynic would say that figure thus sets a floor for the IMF's demands on Greece. That same cynic would most likely be buying gold with any Euros s/he held too.
Yes, 2012 has shown the determination of Euro bureaucrats to defend and preserve monetary union at all costs, but that cost starts with losing the Euro's "hard money" status itself. The European Central Bank still pretends to its inheritance from Germany's post-war Bundesbank. It can try and hide its money printing behind complex names and acronyms, too. But the Eurosystem central banks have doubled their balance-sheets since the financial crisis began 5 years ago, swelling to more than €3 trillion last week.
Huge chunks of those "assets" are merely weak government debt. Unpayable at 1% interest rates, you can guess how few Euros will ever be recovered when the market wrests control back from the bureaucrats and sets the cost of credit once more. Default or devaluation remain the only choice.
As a foretaste, savers are already finding cash-on-deposit and fixed-income bonds to be thankless investments. Creditor nations and resource-rich exporters continue to buy gold for their central bank holdings, with Brazil adding more than 17 tonnes in October alone.
For private individuals, however, the perceived barriers to gold or silver ownership can be varied and large. First there's the apparent volatility – something which people more used to savings account cannot stomach, but which hits the stock-market shares in their retirement funds far harder each day. Then there's the "speculative" nature of choosing a lump of rare metal over abundantly supplied banking or financial services products. Surely only a pessimist buys gold, and only ever for fear of very bad things happening? Ignoring such risks won't reduce them, however. So a third barrier is often put up: the idea that gold or silver bullion can only ever be for the wealthy. Because such high-value material must surely carry very high costs.
This third objection today betrays less caution than laziness. A simple Google search will throw out a hundred and more different providers of bullion, all competing for your hard-won savings with a hundred and more different offers. Yes, some require tens or even hundreds of thousands to start. Many more will take 5% or more in dealer mark-ups when you buy, without flagging that you'll lose that same percentage again when you try to sell your coins or small bars. But the best propositions start from as little as 1 gram at a time, with dealing fees to make your stockbroker blush and ongoing costs – for professional, secure storage with insurance included – running to a fraction of one per cent per year.
Already the best-value, BullionVault this weekend becomes cheaper. Starting Sunday, our initial trading commission will be cut from 0.8% to just 0.5%. On a round trip of $5,000 that will save you $75 versus the next best offer, costing just $25 to buy and another $25 when you sell (assuming a flat price of course).
Low costs alone shouldn't urge you to make the leap and Buy Gold, of course. But the mistake of thinking costs must be high shouldn't stop you either. And there are plenty of good reasons to consider getting gold or silver today. Ignorance may look a sorry excuse in time.