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For Spanish
savers, the financial pages are all crisis, no
solution...
Spain's
financial crisis might be hardening the politics of capitalists vs. workers
and the unemployed, but it's hardly benign for the first group.
The IBEX 35 stock market index
has fallen very nearly to the 6-year low hit in March 2009, and closed Friday
at levels first seen in 1997. Worse still, according to the Bank of Spain's
latest Financial
Stability Report...
- The value of mutual funds has
halved since 2007;
- Private companies are choosing
to hold bank deposits in other countries;
- The new Royal Decree Law -
capping mortgage-interest rates for borrowers - has "in effect
limited the interest rates offered by banks on their deposits";
- Seeking higher rates of return,
households are increasingly accepting Spanish bank products which are
not covered by the deposit guarantee fund (FGD).
Given this
financial crisis, you might expect Spanish savers and investors to be
choosing Gold
Investment instead. "Years of low return on risk capital go with years of high
returns on gold," as John Dizard of the Financial
Times put it way back in 2007. And years of low returns is precisely what
Spain's finance industry has been delivering since long before then.
 
Yet the
Spanish media's financial press, stuffed full of crisis headlines like
everything else (including the sports pages after last week's dismal
Champions League results), isn't pointing to possible escape routes. Indeed,
the only news on gold - the classic escape from low interest rates and
bank-credit risk - is that "the rush peaked last year" and interest
is now waning.
"Gold
has traditionally been a safe haven," says Expansion,
"having a very low correlation or even negative correlation with risky
assets, allowing investors to reduce the total risk of their portfolio. This feature
attracted many investors [worldwide], anticipating declines in risky assets.
But gradually the good performance of gold attracted more investors, who
began to speculate in the metal."
Forecasting a
"very common" event for gold today, Expansion sees later
investors caught out as the market turns - a view which may well prove to be
true. Who can say for sure right now? Any Spanish citizen buying gold in
mid-2007, even as the financial crisis became plain to see, would now have
135% more in Euro terms, and after paying tax on their gains, too.
The crisis
which drove them to buy has only got worse. The current lull in prices, and
the current lull in global demand, doesn't square with the miserable facts or
outlook for returns on risk capital either in Madrid or elsewhere.
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