10/09/2012 Comentar
The
unremitting deterioration of the eurozone’s sovereign debt landscape
continues to fuel uncertainties about the longevity of the euro as a
strong currency. Such uncertainties are not only leading to capital
flight from the EMU’s periphery to the core and destabilizing markets
worldwide, but they are also beginning to frighten southern European
savers into seeking refuge outside their 10-year-old currency.
Such
is the case of Spain – the latest tumbling economy to threaten the
euro’s survival. As the crisis deepens, there is still a window of
opportunity for Spaniards to turn to gold as a means to protect their
wealth against the risks of increased foreign exchange volatility,
forced re-denomination, or even a total currency collapse.
Spain: Too Big to Ignore
While
the general consensus among analysts is that the common currency may
withstand (and even desire) Greece’s exit from the euro system, Spain is
both “too big to fail” and “too big to rescue.”
Indeed,
as the crisis finally hits Spain, the eurozone’s fourth-largest
economy, the country has witnessed the flight of an estimated €315bn
($396bn) worth of foreign capital in the past year – the equivalent of
22% of its GDP. Of this amount, €220bn ($277bn) vanished during the
first six months of 2012. And in just-released numbers from the European
Central Bank (ECB), private sector deposits at Spanish banks fell
almost 5% in July (the biggest drop since the ECB began to record this
data in 1997).
Brussels’
inability to stop Spain (and potentially Italy) from spinning into an
uncontrollable solvency crisis has spurred fear over a potential
disintegration of the euro system.
Others warn,
however, that signs of economic stagnation spreading to the core, along
with rising political and social tensions across the continent, may be
conducive to an equally wealth-destructing picture: the desperate
adoption of expansionary monetary and debt mutualization policies long
prescribed by officials in Brussels to “save the euro.” In fact, ECB
President Mario Draghi just promised as much in his latest remarks on
Thursday.
Naturally, either of these scenarios will severely punish creditors and savers in euro-denominated assets.
From Cement Bricks to Gold Bars?
For
years, Spaniards have trusted home ownership as a safe and profitable
savings channel.
Up until the late 1990s, “investing in bricks,” as the
Spanish call it, was a relatively easy and affordable wealth
accumulation strategy (according to the government, 83% of Spaniards are
homeowners). The coupling of Spaniards’ blind faith in ever-rising real
estate values with the artificially low interest rates that came with
the euro – as well as a financial system plagued by politicians
recklessly managing savings banks – conjured up a massive housing
bubble.
Since Spain’s entry into the euro system,
the country has experienced such economic myopia that in the spring of
2007, Pedro Solbes, the then Socialist government’s Minister of Finance,
revealed the sale of a large portion of the country’s gold. At the
time, Minister Solbes argued that the precious metal “was no longer
profitable,” and that the proceeds from the sale would be “reinvested in
sounder assets,” such as Spanish sovereign debt. That year, Spain sold
157.8 tons of gold (32% of the national reserves) at an average $630 an
ounce.
Spain has lost over $5bn of appreciation in the intervening
years.
As
the real estate bubble burst, and as Spaniards watched with
astonishment the dire economic developments in Ireland, Portugal, and
Greece, the prospect that an era of prosperity (albeit artificial) had
come to a sudden end began to finally sink in.
This past May was a turning point for Spain, when BFA-Bankia, the country’s fourth-largest bank, became de facto nationalized.
Foreign capital flight spiked (€41.3bn left the country in May, and
€56.6bn in June) and small depositors noticeably started to look for
ways to protect their savings.
Following Bankia’s
debacle, Spain’s Budget Minister Cristóbal Montoro was quick to address
the media in an attempt to calm the public. Montoro said that a
“corralito,” or bank holiday, was a technical impossibility in Spain due
to the country’s membership in the euro system, and that all bank
deposits were safe. The damage, however, had already been done –
evidence of a failed financial system demanding billions of foreign aid
to fill its holes and the possibility of Spain following Greece’s path
to economic meltdown had become too evident to conceal.
The
sale of safe deposit boxes has since surged and mainstream media have
begun to run stories on how to legally open accounts in foreign
currencies abroad to protect savings.
Furthermore,
since the ongoing “financial sector restructuring” is far from over and
an estimated 2 million homes remain empty, the value of the real estate
Spaniards possess continues to decline.
So,
Spaniards are now seeing the value of their cherished “bricks”
plummeting, the government keeps on raising taxes, and the future of
their paper money – and even its mere existence – is anything but
guaranteed.
The Gold Market in Spain
According to Marion Mueller, vice president of the Spanish Precious Metals Association (Asociación Española de Metales Preciosos, or AEMP) and founder of Oro y Finanzas, an online publication which specializes in gold and finance, Spaniards’ interest in gold is experiencing a noticeable boost.
“Up
until very recently, to speak about gold as an investment or as wealth
protection insurance was grin-provoking. That is changing,” says
Mueller.
She notes that since 2010, when the
Spanish economic downturn became inescapable, a growing tendency to
invest in physical gold developed among Spanish investors, brokers, and
financial institutions. Demand for physical gold from the general public
is also growing, but Spaniards are not yet as educated about the market
as northern Europeans. “There is still confusion and lack of
information about gold as a way to protect one’s purchasing power,” she
explains, “and our goal at the AEMP and at Oro y Finanzas is precisely to try to inform people about gold.”
Cash-for-gold sign walkers in Madrid (photo: Luis Hernando)
Evidence
of the growing demand for investment gold is also found in the rapid
proliferation of cash-for-gold shops in Spain. This particular market
responds to a different side of the crisis, as it caters to people who
need to sell their jewelry to pay debts or make ends meet. However, in
terms of its relationship with the upswing in bullion demand, scrap gold
is not going back to the jewelry sector. Instead, Mueller explains,
“100% of it is going back to feed the international gold bullion
industry in places such as England, Switzerland, and Belgium.”
As
per a European directive, gold bullion in Spain enjoys a favorable tax
treatment, as the investment-grade metal is exempt from Value Added Tax
(VAT). In addition, in Spain, there are no special taxes or levies
specific to the resale of gold bullion. There is thus great potential
for gold (and silver) to become a money substitute among the population.
According
to Mueller, Spain’s increasing demand for physical gold has led to the
emergence of specialized dealers in Spain. Not only are Spanish precious
metals distributors sprouting, but well-known French and German dealers
are beginning to offer bullion in Spain.
Owning physical gold remains the best protection against wealth confiscation. –Marion Mueller
While access to physical gold in Spain is becoming easier and more widespread, “things might change,” warns Mueller.
“The
rise in gold prices is a reflection not of the crisis, but rather of
the end of a monetary cycle,” Mueller emphasizes. In her view, the
current debacle in Europe may turn governments to intervene in the gold
market. “We live in a period of maximum government control… you can rest
assured that, if [the government] decides to intervene, it will.”
Owning physical gold, Mueller says, “remains the best protection against wealth confiscation.”
Because
the next several months may prove critical to the future of the euro
system, the ECB has charted a course for devaluation. This may continue
to buy the eurozone additional time before its endgame finally plays
out, but any number of factors could still split the common currency.
Either way, this is a critical window of opportunity for Spaniards to
learn how to protect their wealth with gold.
Source>> As The Euro Tumbles, Spaniards Look to Gold
