Until last Friday Silicon Valley Bank was the 16th largest bank in the US. It was worth more than $200 billion dollars.
Silicon Valley Bank
The bank was founded 40 years ago in California – a region known for its tech industry. It quickly grew to become one of the biggest banks in the US.
It was the preferred bank of the tech sector and its services were in high demand during the pandemic years. After the initial shock of Covid-19 in early 2020 a strong period of growth for start-up and established tech companies followed. Consumers spent big on gadgets and digital services.
What went wrong at Silicon Valley Bank?
The bank invested heavily in long-dated US Government Bonds which were considered a very safe investment. Bonds, however, have an inverse relationship with interest rates – when rates rise, bond prices fall. When the Federal Reserve started to raise interest rates to combat inflation, Silicon Valley Bank’s bond portfolio started to lose significant value.
As economic conditions worsened over the last year, many of the bank’s customers started drawing on their deposits. Silicon Valley Bank didn’t have enough cash on hand, so it had to start selling some of its bonds at a considerable loss. This spooked investors and customers, ultimately leading to a “run” on the bank, with customers withdrawing funds at a rate of knots.
Within a couple of days the bank had collapsed. It is the largest bank failure in the US since the global financial crisis of 2008.
Silicon Valley UK which has around 3,000 UK clients also collapsed but has since been purchased by HSBC for £1.
Is this the start of a banking crisis?
The US Government responded quickly and guaranteed all deposits of Silicon Valley Bank customers. This seemed to contain any widespread concern but bank share prices in Asia and Europe have slumped in the last 24 hours. On Monday this week Reuters reported that a second US bank – Signature Bank – has also collapsed and other smaller banks are showing signs of weakness. “Some U.S. regional banks are under pressure after the collapse of two lenders within days, with industry executives and advisers saying they could be forced to seek saviors if a rout in their stocks doesn’t let up.”
Most forecasters expect interest rates to go higher in the US, UK and Australia, before stabilising. The volatility of bank share prices, however, has led to speculation that the Federal Reserve will reconsider its plans to raise interest rates further.
Danni Hewson, head of financial analysis at the stockbrokers AJ Bell, said: “The first rush of relief has been replaced by niggling concerns that the era of high rates might be more difficult for some banks to stomach than had been previously thought.
“In the US, bank stocks slid despite Joe Biden’s pledge that ‘whatever is needed’ will be carried out to prevent more dominos from tumbling.”
The move to Gold
Analysis of recent gold prices shows that investors, concerned by events across the Atlantic, have moved to the safety of gold.
At the time of writing the price of gold is trading at a record high of £1580/oz.
Our own experience is that demand for gold has surged in recent days, with demand for Capital Gains Tax exempt gold being particularly strong. (See our article Capital Gains Tax – Changes following Autumn Statement)
If you’re an investor in the UK, gold and silver ‘Legal Tender’ coins are exempt from CGT. This means you can make an unlimited tax-free profit on investments of any size and value on any legal UK currency coins.
NB. This is not the case with standard gold and silver bars. Gold and silver bars have no denomination value, and even if purchased in the UK, are not representative of legal tender. This makes bullion bars subject to Capital Gains Tax. Examples of CGT-free UK coins include Royal Mint Britannia Coins, Royal Mint Sovereign Coins, Royal Mint Queens Beast Coins and Royal Mint Tudor Beast Coins.
When searching for Capital Gains Tax-free coins on our website, tick the “UK” search filter in the left-hand menu.
Browse all bullion coins that are Capital Gains Tax-Free here.
Here To Help
At times like this stock levels can become quickly diminished. Don’t let this put you off, in most cases you can still place your order and hold the price whilst we wait for the physical bars to come into stock. If you don’t find what you are looking for, give us a call and we should be able to advise on wait times.
We recommend that all readers should do their own research before making any purchases, but if you’d like to speak to a member of the team for some additional guidance, we’d be delighted to hear from you at 01769 618 618, or you can email us at sales@bleyer.co.uk, and we’ll get back to you asap.
