A financial collapse will ultimately start happening and we can already see evidence of this in the bond markets in Europe. This is why you shouldn’t place your hard earned money in the bank.
Consider that the 1 Year German government bond yields are going under zero (see Chart 6). Would you place your money in a bank with interest less than 0%?
It is amazing that people want to lend money to the German government while paying extra money (0,02% of their investment) a year from now. Thereby losing money with their investment.
I can think of only one reason for this and that is: “Your money is not safe in the bank”.
Why would someone not just put their savings in a bank which pays around 1,5 % yield a year. Instead they want to lose money by buying German government bonds. Exactly because your cash is not safe in your bank. At any time your bank will go bankrupt. Germany is a safe haven, so people flee to that country. But there are far better alternatives which I will talk about next on.
Chart 6:
Completely the opposite is the 1 year Greece Government Bond Yield (see Chart 7), which is surging past a record 380 %, which basically means a default on their debt. And a collapse in Greece means a collapse in the banking industry.
Chart 7:
It amazes me that people still buy these government bonds, knowing that the bond bull market is coming to its end.
US government bond yields have run a 30+ year bull market (1980-2012). I think it’s time for the market to start moving the money from government bonds to precious metals.
Which takes me to the ultimate safe haven: Gold and Silver!
During hyperinflation, the best way to protect yourself is to buy precious metals like gold and silver. There are many reasons to do so.
The first one is because of a complete depletion of commodities in about 20 years from now (see chart 8). Especially silver (Ag) will become scarce and ultimately will be depleted in about 11 years if we keep growing exponentially. Oil will double in price in about 2 years from now due to production decreases (peak oil theory).
Chart 8: Commodity depletion
In the beginning of 2012 a very interesting event happened in the silver market. The premium over spot price of a certain silver trust (PSLV) surged to 34%. Why would people buy silver at such high premiums? That’s because the silver price is about to start surging upwards.
Chart 9: Silver premium/price
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Silver premium (%) blue dots, Silver Price (USD) red dots |
Much like silver, gold is ultimately the best store of value. If we consider the amount of money the US federal reserve has printed, gold is still very cheap historically, which is the second reason to buy gold. If we calculate the Gold Money Index as:
GMI = Central bank foreign exchange reserves (USD) / Central Bank Gold Reserves (ounces)
Then the gold price would have to go to 12000 USD. We are at 1600 USD so that’s an eightfold increase!
With the problems in the Eurozone I would be very wary about staying in cash. Chart 10 tells us that Belgians would lose 23,9% of their money if they would go back to the Belgian Frank. This is the third reason to buy gold.
Chart 10: Fair value during breakup of Euro
And finally the last reason to buy gold: during the Great Depression everything collapsed (real estate, oil companies, stocks, bonds, cash). The only things that surged were gold and gold mining companies. A similar event happened in Iceland in 2008, the last man standing was gold.
We can already see turmoil in the whole world. USA is starting a war against Iran. China and Japan get out of the US dollar trade. Russia sells out on 70% of their US government bonds. Occupy Wall Street happens. Greece is in chaos…
Conclusion: Enjoy the beauty of life while it lasts and buy gold/silver.
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