The collapse of banks: what is the advantage of gold?

Today, more than two thirds of the world population have a bank account. In developed countries, bank cards are used for financial transactions way more often. There is a popular opinion that a bank is a reliable structure with a high level of security.

Probably, millions of depositors of the USSR Sberbank thought the same thing. In 1991, along with the change of the political regime, the bank was liquidated, and the deposits were frozen, while the compensation has not been paid in full yet.

The clients of the largest US banks Lehman Brothers and Washington Mutual, most likely, also did not expect any trouble. In 2008, both financial giants went bankrupt, taking down hundreds of other banks with them, thus triggering a global financial crisis.

Can it happen again? Is the banking system across different regions of the planet secure enough?

Russia

Last year, the Yugra Bank went bankrupt, despite being among the top 30 largest banks in Russia. This is not the only example: over the past five and a half years, the number of banks in the country has halved. In most cases, their business activities were terminated due to critical financial situation or legal violations.

The EU

Numerous “toxic” assets (such as bad debts, bonds of disadvantaged countries) had a negative impact on the European banks.

The oldest bank in the world Monte dei Paschi di Siena, founded in 1472, is on the verge of bankruptcy.

The largest German bank Deutsche Bank has been declared the most dangerous financial institution in the world by the IMF* experts. The bank has been suffering losses for years, and its final collapse poses a threat of another global financial crisis.

In the chart: the price fall of the Deutsche Bank shares over the last year.

India

Reckless credit policies cost Indian bankers dearly. The local banks have accumulated overdue loans worth more than $145 billion. Such circumstances undermine the economy of India, putting its banking industry at risk.

Five signs of a bank that is on the verge of bankruptcy

• High deposit rates. If the bank’s offer is 10-20% higher than the interest rate of its competitors – you should think twice before making a decision. Most likely, the bank lacks clients, and it attracts them in such a risky way.

• The closure of offices. The reduction in the number of branches and the dismissal of staff often indicate serious problems.

• Rapid expansion. When a new and virtually unknown bank is expanding very rapidly, it may well be a soon-to-be burst economic “bubble”.

• Low profit or loss. All banks are required to publish reports on their financial activities. You can learn about the status of a bank through financial news. A sharp decrease in profits by tens of percent is an alarming sign.

• Service interruptions. Refusal to issue cash, delayed transactions and sudden changes in the bank’s working hours are signs that often lead up to bankruptcy.

The insolvency of banks often creates a lot of difficulties for investors. It is not always possible to get your money back immediately and in full. The banking sector of Tajikistan has been in deep crisis since 2015: thousands of clients are trying to claim back their deposits, requesting compensation to be paid by the barely solvent banks. Some of them fear that they won’t live to see the day when they can finally reclaim the invested funds.

The liquidation of a bank can sometimes last up to several years, meanwhile clients may not have access to their deposits. You may end up being out of money for quite a long time if you don’t have emergency savings or accounts in other banks.

Gold comes to the rescue

To protect yourself against such risks, storing some of the money in gold is a wise thing to do. Personal gold reserves protect against threats associated with the shortcomings of the banking and monetary systems. Cash tends to depreciate – it is very unlikely that the stock of cash will have the same value in a year or two.

Unlike currency, gold is not subject to inflation, it preserves the value of the invested funds, regardless of the economic situation in the country and the world. Having a highly valuable metal at your disposal, it can be turned into money. Owning gold is the foundation of Financial Security.

On April 23, 2019, the price of an ounce of gold is $1,274.

In the chart: over the past six months, the price of gold has demonstrated a steady upward trend.

WHY GOLD IS THE IDEAL TOOL FOR CAPITAL PRESERVATION

Glossary:

*IMF (International Monetary Fund) — a specialized agency of the United Nations that monitors the stability of the global financial system and provides loans to countries.