A large number of US investors have decided to buy gold and other safe-haven assets, because they have grown fearful of our nation’s faltering banking sector. Many of America’s largest banks may be showing signs of recovery, but our nation’s regional banks have lost billions within the last three months. The hype surrounding our nation’s largest banks recently has not carried over to regional banks, because profitable third quarters were experienced mainly by the larger banks alone. Massive pay cuts, lower budgets, and hundreds of billions of dollars in government aid contributed to their impressive numbers, but profits were rendered nonetheless. Time will tell if these financial giants are able to stand without the crutch of taxpayer assistance, but the chronic condition of our regional banks is worsening.
Regional banks rely much more heavily on everyday savings and loans to create revenue than banks like JPMorgan-Chase, Goldman-Sachs, or Merrill Lynch. Regional banks specialize in lending their deposits at a higher rate than the interest given to bank account holders. Larger banks have the ability to maintain a more diverse investment clientele, but regional banks do not have this advantage. The struggling US housing sector and our nation’s rising unemployment levels have caused additional headaches for regional banks, because these banks already have billions tied up in their home loan portfolios. Commercial real estate loan defaults are expected to increase dramatically during the next two years, so unfortunate regional banks will have to endure these setbacks until consumer confidence and spending rebounds. The FDIC is no help in this respect, since this government entity is already overdrawn on its’ own account. The instability of our banking sector is more than enough reason to convert precarious cash accounts into safe-haven assets like gold. Investors buy gold and other safe-haven assets because the financial independence that liquid, privately held assets give is unquestionable.
Steven Martin
Senior Gold Specialist - Buy-Gold.org
