Gold Demand in Spain Spiking as Uncertainty Looms

Pinnacle Digest writes: Recently Peter Schiff highlighted a very intriguing article from J. Luis Martin, about the ramifications of the European debt crisis. Martin is an International Relations analyst and business development consultant based in Spain. He is also founder of The Truman Factor, a bilingual publication focusing on world economy and politics. In his recent article, Martin documents the state of the currency crisis in Europe and how it is forcing southern Europeans (presumably people living in Spain, Italy etc) to look outside of the euro in order to preserve their savings.

Spain is Martin’s home country and he states in his report that unlike Greece, it is too big to ignore, but too big to bail out. Spain is Europe’s fourth largest economy and the wheels appear to be coming off. Martin reveals a shocking statistic regarding the country’s current fiscal situation. “Indeed, as the crisis finally hits Spain, the eurozone's fourth-largest economy, the country has witnessed the flight of €315bn ($397bn) worth of foreign capital in the past year - the equivalent of 22% of its GDP” stated Martin. If the equivalent of 22% of the US’ GDP (in foreign investment) left the country, the financial market as we know it would crumble. And that is exactly what is happening in Spain.

Martin goes on to state that “Of this amount, €220bn ($274bn) 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).”

With more monetary easing being implemented, and Mario Draghi promising to save the euro at any cost, savers are becoming nervous as the currency is almost certain to lose a significant chunk of its purchasing power.

Martin explains that until recently, thanks to a cultural bias and extremely low interest rates since the euro was created, Spanish people have been strong believers in putting their savings into the housing market. Until recently, 83% of Spaniards owned their own home. And during the run-up in the Spanish real-estate bubble, its socialist finance minister sold 33% of the country’s gold reserves as he believed it was no longer profitable and felt the need to invest in better assets. Martin explains how that decision has cost Spain $5 billion since the sale was made (sale was in 2007). The country sold 33% of its gold for roughly $630 an ounce.

Fast forward to 2012:

Martin explained that “This past May was a turning point for Spain, when BFA-Bankia, the country's fourth-largest bank, became de facto nationalized. [Click here to read J. Luis' coverage of this event.] 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.”

Despite bureaucrats’ attempts to try and calm the public and reassure them that the Spanish banking system was OK, the citizens weren’t fooled. Too much had been exposed after BFA-Bankia became nationalized. The whole banking system was vulnerable and depositors knew it.

Martin states in his article that “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.”


Gold Demand in Spain is Picking Up

Given all the uncertainties in the Spanish banking system and the future of the euro, Spanish savers are starting to purchase gold at rates not seen since the euro’s inception. In general, according to Martin, Spanish people are not as educated on how gold works as an investment in comparison to Northern Europeans; however, that is starting to change and many gold dealers, both domestic and abroad, are infiltrating Spain in order to feed the rising demand. This is a very significant development and one we encourage you to learn more about by reading Martin’s full article here.

If anything close happens in the US as is occurring in Spain right now, the financial markets will collapse and gold will skyrocket in value. At that point, one has to consider just how desperate the government will become. Wealth has been confiscated before and there are no assurances it won’t happen again. Spain will serve as a great example in the coming years as to just how desperate governments may become.