Continued banking problems are leading more people to buy gold as the Federal Deposit Insurance Corporation announced that it has added 450 banks to its list of problem lenders in 2009. There are on-going concerns that this number will continue to rise as the FDIC warned that the industry is likely to remain under stress. Starting the year with only 252 problem banks, that number swelled to 702 by the end of the year, with the number of banks and total assets reaching their highest levels since 1993.
Amazingly, there is an unfounded optimism at the FDIC. “There is incremental improvement,” said Sheila C. Bair, the F.D.I.C. chairwoman, said in a news conference in Washington today. “We are seeing some encouraging signs here. Over all, the banking system is challenged, but stable.” Unfortunately for the FDIC, the numbers do not show the same optimism. The banking industry received over $700 billion in stimulus funds, yet posted a profit that was down nearly 88% from previous years. Although the industry was the beneficiary of super-low interest rates, most small and medium-sized banks encountered record losses.
The banking crisis is far from over and should be monitored by people who invest in gold. As the Federal Reserve begins its announced plan of raising interest rates, the easy profits of the past two years are likely to disappear and additional banks could fail, just as happened during the saving and loan crisis. For many people, alternate forms of secure investments need to be explored and gold is likely to be the answer for many.
Many people buy gold during times like these because it acts as a hedge against inflation. As inflation increases, the value of gold against the US dollar generally increases as well, making it more valuable. For many, this becomes a way to keep savings and accumulated wealth from dropping in value during difficult times. Investors should take note of the banking industry problems and look to add more gold to their portfolios.
Steven Martin
Senior Gold Specialist - Buy-Gold.org
