This is a word of caution to everyone who is, or is even considering, sheltering gold in the European banking system. It comes from a King World News interview with champion of wealth preservation and founder and managing partner of Switzerland’s Matterhorn Asset Management, Egon von Greyerz.
American investors tend to underestimate the gravity of the problems in Europe’s banking system. “This is just amazing,” von Greyerz says. “We have bank runs in Greece and Spain, and now a French bank, one of the biggest mortgage banks, is also having problems. Ireland, they thought they were all right, but they need more money.”
Von Greyerz believes that “much bigger bank runs than we’re seeing today” are on the horizon “and the countries [investors] think are okay are not okay,” even Germany. What might come as a bigger surprise to American investors, the legendary sacrosanctity of the Swiss Banking System is also in question.
In regards to unallocated gold and silver, bullion banks operate on a fractional reserve basis, much like conventional banks. That is, paper deposits become an asset of the bank and they need hold only a fraction of the physical gold those deposits represent. When confidence falls to the point where bank runs begin, bullion banks are no less vulnerable.
Allocated gold and silver is supposed to be different. Deposits are not an asset of the bank and therefore they should be kept separate and away from bank operations. However, the fractional reserve of paper deposits has historically been more than sufficient to ensure physical delivery of both allocated and unallocated gold and silver to the relatively few investors who demanded it.
But things have changed.
Von Greyerz bluntly illustrates with a recent experience he had with a client who was trying to transfer a sizeable quantity of gold from a Swiss bank into his vaults. “This was supposed to be allocated gold,” he says, “but the bank didn’t have it.”
“We are stressing to investors to take their gold out of the banking system,” von Greyerz says. No less should be said of silver.
American investors seeking to protect their gold and silver from domestic threats should heed the warning.