Dear Reader,

Another incredibly busy week.  Do you ever feel like real life imitates the movies? Or is the truth rather that the movies imitate real life?

There is that moment most of us have seen; the hero or heroine just, just, just makes it out in time, before the bridge/tsunami/train collapes/arrives/derails.  It is this horror that happened in Italy this week. Our hearts go out to the many people affected by a train crash, the techicalities of which are hard to grasp in a 21st century world of efficient organisation. 

Yet, Italy also is the scene of a massive economic collapse, similar to Greece; but bigger.  If the UK can extricate ourselves from the EU and ECB fast enough, we will escape just in time:

“The focus of attention has switched to Italy’s banking sector, which has accumulated €360 billion in bad loans, and growing. A former member of the ECB executive board Lorenzo Bini Smaghi, and now chairman at Societe Generale, has warned the banking crisis in Italy could spread to the entire EU. “Europe is extremely sick and must start dealing with its problems extremely quickly, or else there may be an accident. I’m no doomsday prophet, I am a realist,” he said in an interview to Welt am Sonntag. According to Folkerts-Landau, Brussels should follow Washington’s steps that helped US banks with a $475 billion bailout.” In Europe, the bailout does not need to be so large. A €150 billion program should be enough to help European banks recapitalize,” he said. The decline in bank stocks is only the symptom of a much larger problem, which is low growth, high debt and dangerous deflation, Folkerts-Landau added.  Over the last 12 months, Deutsche Bank shares have plummeted 48 percent. Another major European bank, Credit Suisse is down 63 percent since July 31 last year. All in all, the Bloomberg Europe 500 Banks and Financial Services Index has nosedived 33 percent in 2015 to the lowest level in more than seven years as of last Thursday.”  (RT, 11th July 2016)

Did you read that?  The part where the economist says, “Oh the bail out doesn’t need to be as large (as the US) – 150 billion euros should do it!”  Not millions, billions!!  A bail out is just another debt, taken on this time by the government of that country, or in the EU’s case, all the other 27 member states.  We must run – economically speaking – as fast as we can away from the coming tsunami.

It has been puzzling me that the liberal narrative looked at the pound’s value against the dollar, post Brexit. An odd way to look at it, without ever mentioning that a lower pound makes our exports more attractive to international investors. And looking at Europe puts our own wobbles at uncertainty into perspective: 

“[Italy’s] share prices have been hammered in the weeks since markets were shocked by Britain’s vote to quit the European Union, with Unicredit – Italy’s largest bank – losing 30.1 per cent of its value.” (Daily Mail, July 2016) This is simply because other international investors recognise that one of the largest healtier economies is preparing to leave the room.

Several commentors have recognised this impending European disaster: “A high level of short selling suggests that many are now predicting trouble ahead for the Italian financial system. The IMF took a bleak view of the sector in its report. It warned that Italian lenders faced major issues due to bad debt and difficulties in turning a profit. Although a huge push to cut interest rates and improve credit conditions might help some struggling lenders, others will suffer from ‘very negative profitability’ regardless of what happens, it said. The report also warned that even if there was such an effort, demand for loans might still not be high enough to allow improved profits. Italy itself has a public debt 133pc the size of its economy and is ill-placed to rescue its stricken banks. Government action is also forbidden under EU rules. Italian Prime Minister Matteo Renzi seized on Brexit as an opportunity to beg for the right to launch a bailout, but his demands were rebuffed by German Chancellor Angela Merkel.” (James Burton, Banking Correspondent for the Mail, 12 July 2016)
It is truly refreshing to hear that nations are queuing up to make trade deals with Britian: the U.S., Iceland, India, Germany, New Zealand, Australia, Ghana, Canada, Mexico (who’ve already sent a draft trade deal!), Switzerland (the success story of Europe without, like us soon, being in the EU) and South Korea.

To put this good news in perspective; “While Brexit doom-mongers have been focussing on the challenges of keeping access to the EU’s single market (16% of global trade – less once we’re gone), they forget there is a world elsewhere. Green shoots are already emerging, as other countries start to realise the possibilities of free trade deals with a newly-liberated Britain, less than a week after the referendum.” (Heatstreet, 29 June 2016)  And if we treated our friends the way Obama treats his, (which we won’t because Great Britain is classy) we would politely ask him to go to the back of that eleven country queue.  A little chortle into our delicious cup of morning tea.

I’d prefer to focus on the positive. For example, India alone has three times as many citizens as the EU. What’s great is that these new deals won’t just benefit an independent Great Britain; they’ll benefit our new economic partners.  “Protectionist EU agricultural policies penalise African countries (such as Ghana) meaning freer trade with the UK could help them to prosperity through trade.” (Lukas Mikelionis, June 2016)

It was excellent news to read of Sajid Javid our business secretary leaving for India last week already! “The Cabinet minister said he was headed to India because of the “strong bilateral trade relationship between our two countries, and I am determined that we build on this”. Last year, exchange between the two countries stood at some £16.6bn. Mr Javid will engage in similar trade meetings in the USA, China, Japan and South Korea over the coming months.His colleague, trade minister Lord Price, has been in Shanghai this week at the G20 trade meeting. Mr Javid confirmed that the Government would recruit at least 300 extra civil servants by the end of the year, including trade negotiators, with a view to beefing up Whitehall’s capacity to strike new deals.”  (The Telegraph, 8th July 2016)  Contrary to the liberal narrative it was my teenage son who brought me this news, having been a keen Brexiter and having met Mr Javid last year at his school.  The younger generation are often awake and pro an independent international Great Britain.

So, how does this affect the price of Gold and Silver?  On the one hand, as we begin to see more stability as we get over this time of change, Great Britain’s economy would do well.  On the other hand, we are affected by the coming collapse of the euro. How? Well, for a start, some of our banks are currently owned by EU countries. “If your bank is foreign-owned, but offers products to British savers, the chances are it will also be registered with the FCA. Check your bank’s website to confirm this, and if you’re still not sure, give them a call or check on the FCA’s website. Some providers that operate here in the UK aren’t registered with the FCA. Instead, you’ll be protected by the compensation scheme that operates in their country of origin.” Santander is the most well known example of a bank in Britain but which is actually registered in Spain.

I found out some slightly unnerving facts this week regarding how the EU has affected our finanical protection in our own national banking system.  After Nortern Rock many of us became aware that our money was “guaranteed” in a bank up to £85.000.  Obviously, this guarantee does not include the shocking move of withdrawal limts, such as we saw in Greece last summer. That “guarantee” then dropped to £75,000 but I was shocked to find out the reason why: “The scheme pays out up to £75,000 per person, or £150,000 for joint accounts, per financial institution, if your bank or building society fails. This protection limit was reduced from £85,000 per person, or £170,000 per financial institution on January 1, 2016. The limit is reviewed every five years, and is set in line with the rest of Europe, where savers’ deposits are protected up to €100,000 per person. The pound has strengthened against the euro recently (so each pound buys more euros), which is why the limit has fallen.” (Money Super Market, February 2016) 

But here is what I found fascinating and did quickly want to pass onto our readers.  Did you know that if you therefore had £75,000 in say, five different savings accounts with Santander (formerly Abbey), Alliance & Leicester, ASDA, Bradford & Bingley and Cahoot you would think that if Santender went bust you would be protected for your full £375,000. But you would not. You would only get back £75,000. Why? Because of this rule:

 “If there is only a single registration for the entire group, you will only have £75,000 protection across all that institution’s brands.”  And all the above banks or savings accounts are actually the same brand as Santender.

“To make matters more complicated, there are a number of brands that operate under the HBOS licence: Halifax, Bank of Scotland, BM Savings, Intelligent Finance, The AA and Saga. This means that if you have a savings account with Halifax, and another with BM Savings, only £75,000 is protected. You only get protection from each individual brand if they are each registered separately with the FCA.” (How Safe are Your Savings, February 2016)

This is why it may well be worth considering moving some of your savings into physical Gold and Silver.  We offer a range of home safes or secure UK storage in an allocated account, with our CEO Caroline Peers regularly checking on your Gold.  It is a high security national vault with extremely strict rules for entry. 

An additional advantage of holding some of one’s savings in Physical Gold and Silver is that in the near term, we would not be surprised if interest rates were cut slightly lower.

The widely-expected move could help to stave off a recession, while knocking the value of the pound. The decision could also have implications for your ability to get a mortgage, as well as your savings and pension.  This uncertainty is likely to weigh on economic activity, and it is feared that Britain could fall back into a recession. We won’t know if that is the case for many months, if not years, but policymakers would prefer to act in advance of a downturn, rather than after one has begun. One way in which the MPC could intervene is by slashing interest rates.

What would interest rate cuts achieve? Commercial banks park their money at the Bank, earning a small amount in return for doing so. Cuts to the Bank rate would make this slightly less attractive, and make other options more appealing. Accordingly, lenders might instead choose to deploy their funds in other ways, such as investing the cash or lending it out. The latter would increase the supply of money in the economy.” (Telegraph Business, 12 July 2016)

This raises two immediate points: 

1)  Gold and Silver become even more attractive as an investment in times of lower interest rates.
2)  With gains of 14.79% in the last 3 months, this makes Gold a more attractive investment in one’s pension, as well as savings.

The interest rate cut, if it happens, will be annoucned tomorrow and the murmerings are this: “Thirty of 54 economists surveyed by Bloomberg predict the benchmark interest rate will be lowered on July 14, with a majority of those seeing a 25 basis-point reduction to 0.25 per cent.” (The Independent, 11 July 2016)

But, in conclusion, the saying holds true that the lower interest rates fall in a deflationary cycle, the higher and quicker they rise in the following hyper inflationary cycle.  It is important to remember that although the British economy may paddle away from the sinking euro ship just in time, we – as a globe – face unprecedented economic debt fundamentals and over-inflation of the paper money supply.  It’s important to keep our eyes a few years ahead, on the demand for physical Gold and Silver and on the global super-powers of the US and China/Russia:

“With both stocks and US Treasury prices at all time highs the market is sensing that something has to give, and that something may just be more QE, which likely explains the move higher in gold to coincide with both risk and risk-haven assets. As of moments ago, gold rose above $1,370, and was back to levels not seen since 2014. Curiously, the move higher is taking place after Friday’s “stellar” jobs report, suggesting that someone does not believe the seasonally-adjusted numbers goalseeked by the BLS. Case in point, Japanese savers who, fearing domestic confiscation, have been accumulating gold in Switzerland. It’s not just the Japanese: as Nick Laird shows, the past week saw the second largest ever increase in physical gold holdings, as the total published holdings of physical funds rose by 2.5 million ounces to 85.8 million, second only to the 4 million ounce increase in early 2009. Finally, with even the sellside starting to turn, there may be more upside as the slow money starts to move in. In a whimsical note released on Friday, Bank of America’s metals team writes “Gold: always believe in your soul. Glad you are bound to return. You’re indestructible.” Yes, we were surprised too, but it’s true” (Zerohedge, “The World Is Walking From Crisis To Crisis” – Why BofA Sees $1,500 Gold And $30 Silver, 10th July 2016)

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We hope you have a great week and look forward to speaking with you soon.

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