Gold & Silver Are Necessary Insurance Against Today’s Dysfunctional & Corrupt Governments

Despite the fact that the Greek government has now imposed capital controls and has instructed banks to close for this week, the price of gold had a rather muted response while global equities experienced a sharp sell-off.

As gold prices underwent a minor rally, European shares tumbled more than 2%. German and French shares each suffered their worst loss since Nov. 1, 2011. The Stoxx Europe marked its sharpest decline since October, dropping 2.6% to 386. The Greek stock market will be closed all week. 

Talks between Greece and its creditors may continue as Greece faces defaulting on a €1.55 billion ($1.73 billion) payment to the International Monetary Fund (IMF). Also as of Tuesday, Greece looks set to go without funding from international lenders.  

The Greek government has closed the banks and has imposed capital controls after the European Central Bank (ECB) froze vital funding support to Greece's banks, leaving Athens with little choice but to shut down the system to keep the banks from collapsing.

Banks are expected to be closed all this week, and there will be a daily 60 euro limit on cash withdrawals from cash machines, which will reopen on Tuesday. Capital controls are likely to last for many months at least.

Greece is bankrupt. The government has more obligations than they can possibly meet. The Greek banking system has been relying on special liquidity support from the European Central Bank (ECB) in the face of a spate of withdrawals by worried citizens.

On Sunday, the Greek Parliament approved Prime Minister Alexis Tsiparis’ motion to hold a referendum on Greek creditors’ fiscal reform proposal.  The vote, scheduled for July 5, will ask Greek citizens whether they should accept a debt financing deal negotiated with European lenders.

"The creditors have not sought our approval but have asked for us to abandon our dignity. We must refuse," Prime Minister Alexis Tsipras said in urging voters to reject the deal.

Greece owes the IMF some 1.6 billion euros, due today. Its bailout program also expires today and unless it receives an infusion of new funds, Greece may face a collapse of its economy and be required to leave the euro.

The announcement of the referendum resulted in massive cash withdrawals by individuals around the country-- further jeopardizing the country’s fragile banking system.

The surprise decision by Tsipras, prompted lines of people at ATMs across the country as Greeks worried the crisis could shortly lead to restrictions on capital movements and potentially an exit from the European single currency.

Fears are growing over the health of Greek banks after indications that savers have withdrawn billions of euros in the past week.  More than one-third of automated teller machines across Greece ran out of cash on Saturday before they were replenished as Greeks pulled out money on fears their country was set to crash out of the euro.

According to sources working at the banks, about 35% of the ATM network — some 2,000 out of the 5,500 ATMs across Greece — ran out of euro banknotes at one point during the day and were being replenished. Banks were working in coordination with the central bank to keep the network fed with cash, they said.

Around 600 million euros was withdrawn from the banking system on Saturday, one senior banker at one of Greece's four big lenders told Reuters. A second banker estimated the outflow at more than 500 million euros.

Though that was below the level of over 1 billion euros seen on some days over the past two weeks, the figure was almost exclusively from ATM withdrawals, where the average daily limit of cash that can be taken out is 600 to 700 euros, bankers said.

The ECB has been allowing Greek banks to draw emergency credit from Greece's central bank, a financial lifeline that has been keeping Greece's four major banks going during the country's tense bailout negotiations with creditors. The ECB has been slowly increasing the emergency credit to compensate for the increase in withdrawals from Greek banks. But, on Sunday, The ECB decided to freeze the level of funding support it gives Greece's banking system rather than increase it to cover withdrawals by wary depositors, who lined up 50 deep outside ATMs in central Greece Sunday,

I maintain that the only solution will be a Greek exit. It's for the best interest of that country. While in the short term, Greece will suffer financially, I have little doubt that the country will recover within a year after dropping the euro. I also think we're going to see more of the European countries move towards having relationships with Russia because they want to do trade. Many European businessmen have expressed their dissatisfaction with the sanctions that have been imposed on Russia by the Eurozone leaders. And, many of these individuals are tired of hearing the anti-Russian/Putin rhetoric of Western governments, especially when many of their claims against Russia cannot be substantiated.

Meanwhile, there are signs that Chinese investors might be converting some of their financial assets into physical gold as demand for physical gold in China increases. .

Withdrawals of physical gold from the Shanghai Gold Exchange and Shanghai International Gold Exchange jumped 41% in the trading week 8-12th June from the previous week, while year-to-date withdrawals are up 20% cent to an incredible 1,061 tons. That’s more than China’s entire last officially declared gold reserve. It represents a massive conversion of paper assets into bars of the precious metal.

The 8-12th June gold rush came before the Shanghai Composite began to sell-off late last week, quickly entering a bear market with stocks down more than 20%.

In other news, according to the latest Swiss export data which show that in May this year, Hong Kong (36.4 tons) was the largest importer of Swiss gold, followed by India (24.7 tons) and Mainland China (18.8 tons), thus again showing that 34% of the combined Swiss gold exports to Hong Kong plus Mainland China went directly to the latter, bypassing Hong Kong altogether.

These figures also suggest that overall Chinese demand remains relatively strong while Indian demand may be slipping ahead of the monsoon, although total exports to the three nations has fallen off somewhat compared with earlier in the year.

With so many reasons as to why the gold price should be a lot higher, one wonders why gold prices continue to languish near major lows. The main factor behind this weakness is extreme shorting by speculators and bullion banks on Comex. However, their actions are helping prudent investors to accumulate more physical as they diversify out of paper assets and into precious metals at the current low prices.

Let the Greek crisis be a lesson for individuals who believe that “it can’t happen to them.”

Governments will resort to desperate measures when they are bankrupt. They will impose capital controls, exchange controls, and they will even confiscate your money on deposit. And, if they depreciate the currency to pay off their debts, the purchasing value of your money will become worthless, just as in the case of Zimbabwe.

Individuals in Greece have left it to the last moment to act. Now, they have to stand in line at ATM machines across Greece with empty garbage bags trying to figure out how to survive against strict capital controls.  And, they are restricted in the amount of money they can withdraw.

It seems that there is a very clear purpose for governments wanting to create a cashless society and that is, once they have your money in the system, it belongs to them. In order to protect your funds against this shameless act, put some of it into gold and silver. Gold and silver bullion coins and bars are traditional diversification tools.

No one knows where the world economy is ultimately heading. But, what is for sure, is that major governments have created artificially high stock markets, fragile economies, oppressive banking policies and unprecedented debt levels.

Prepare yourself for an imminent financial collapse.

That’s why the safest course of action remains not keeping all your eggs in one basket. Instead, you should diversify a portion of your assets to non-paper assets such as gold.

TECHNICAL ANALYSIS

Gold prices remain trapped in trading range between $1180/oz. and $1220/oz. I expect prices to rebound from the lower end of this range.