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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
10/09/2012 por J. Luis Martín Comentar
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