As Cyprus Struggles, Now Is the Time to Buy Gold

Email

I'll bet a few Cypriot bank account holders are paying much closer attention to gold now.

Since the announcement that Cyprus was looking to confiscate up to 10% of bank deposits, gold has risen by up to $24/ounce on safe haven demand.

After all, gold is real wealth, and it's the only asset that's not simultaneously someone else's liability.

Central bankers, even in the West, know this too. As former Federal Reserve Chairman Alan Greenspan once said:

"Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it."

I just hope the irony of that message — and its messenger — aren't lost on you.

As for Cyprus, this ongoing crisis has it all. Along with gold, there's debt, energy, intrigue and a long storied history…

The Cyprus Bailout Pits East vs. West

Situated just south of Turkey, west of Syria, and north of Israel, the Mediterranean island of Cyprus straddles the great divide between east and west.

Thanks to its strategic location in the Middle East, Cyprus has been occupied through the ages by numerous major powers, including the Egyptians, Assyrians, Romans, Ottomans, and even the British.

In the 1970 s, Cyprus became disputed territory between the Turks and the Greeks. That's still true today.

Since joining the EU as a member state in 2004, the island nation has prospered as its economy became more diversified, and banking, tourism, and shipping flourished.

But thanks to the Greek sovereign debt crisis, a massive influx of Russians and their money, and some recently discovered natural resources, this territory is back to being disputed.

It's a battle of east and west again. This time: It's Europe and Russia.

Here's what I mean…

The Eurozone's debt crisis of 2012 has devastated Cyprus' banking system to the point where it now needs a bailout to the tune of 10 billion euros.

Cypriot banks are teetering on the edge, thanks to overexposure to the ongoing financial crisis in Greece. The European Central Bank (ECB) has threatened to cut emergency lending assistance, and Nicosia is not willing to liquidate the two large Cypriot banks in trouble since that could drag down the entire financial industry.

For Cyprus, finance is important. According to Eurogroup president Jeroen Dijsselbloem, Cyprus' banking sector is more than five times its GDP. Further, Eurogroup predicted that the island's public debt would reach 100% of GDP by 2020.

A Game of Russian Roulette

Cyprus' banks have managed to swell, thanks to an influx of money from Russian oligarchs and banks. Some estimates for the amount of Russian money in Cyprus run as high as $30 billion. According to Moody's Investors Services, adding in loans to Cyprus-registered corporations doubles Russia's exposure to about $60 billion.

So a proposed 10% tax on Cypriot bank accounts would effectively be a tax on Russian money.

But that plan, hatched by the Europeans to raise $7.5 billion, was rejected by Cyprus' Parliament, throwing the bailout into doubt. For now, Europe has pledged unlimited liquidity to help keep banks afloat, so long as a deal is reached in short order.

Keep in mind, though, that a bailout of Cypriot banks is essentially a bailout of Russian depositors in those banks, not something the Europeans are particularly fond of. It is probably why they pushed so hard for the "one time" tax on those accounts, rather than a "regular" bailout of extended loans and lower interest payments like other deadbeat euro members have been getting.

Besides contributing deposits, businesses, and thousands of expats, Russia also has a 2.5 billion e uro loan to Cyprus. So clearly, Russia has plenty of reasons to care about the future of Cyprus.

But there's one more strategic reason: Energy.

Join the conversation. Click here to jump to comments…

About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

Read full bio

  1. R100CAF | March 25, 2013

    Interesting to note that the US have recently asked the British for the use of their military base in Cyprus as they now build up their forces in what is the biggest movement of military machinery might since the first gulf war. The US see this as a key base in case Iran kicks off. Given the ties between China – Russia – Iran ….Now why would the EU be so keen to get the Russians to flee from Cyprus…it's all part of the bigger picture military power / influence as well as creating the collapse in the economic system that the new world order want to see. This collapse in the condo mic system will also see hyper inflation which will eventually eat at any debt owed by the old western powers to the BRICS..

    • DD | March 27, 2013

      That ok R100CAF, the US/UK (and Israel) can build its military wherever they want because fate and the grace of God will NOT allow them to win any war, anywhere, under the lies and deceit that we have seen coming out of this country in the past decade(s).

      If the US et al goes into Iran under lies and deceit etc, the US will be going DOWN for good!

  2. Dianne McCollum | March 25, 2013

    Cyprus a one off- HARDLY.
    According to a Hawke's Bay Today reporter B.Bisset ALL banks with more than $1B in deposits in New Zealand have to adopt by July1/13 the Open Bank Resolution which gives the manager the right to SEIZE whatever proportion of depositors funds to cover the losses should the bank fail- regardless of reason.

    • R100CAF | March 25, 2013

      Absolutely agree Dianne, for want of a better way to put it ..the average wo/man will keep getting screwed while the top % will keep taking pick pocketing the honest mans cash

  3. redmapleleaf | March 25, 2013

    Now NZ is taking steps to be able to do something like Cyprus too?? Maybe this is why Canada has "tax-free accounts" for Canadians to be able to save tax free. Better to have a whole lot of depositors when you need to skim the cash!!
    Oh, we are such a "smart" and "educated" world and yet this stuff is happening right before our eyes and the masses are still so unaware.

  4. Craig Bradley | March 25, 2013

    IS YOUR GOLD SAFE ?

    If a bank can seize your money (property) arbitrarily or assess a "tax" on deposits or limit access to your funds ( temporary bank closure or captial controls), then they could easily do the same with any precious metals (gold) you have stored in THEIR saftety deposit box, as well. In addition, any offshore gold stored in a bank must be reported annually to the IRS if the face value of the coins exceeds $10,000 U.S. Dollars. The exact details of any annual reporting requirements is not exactly clear.

  5. LT212 | April 2, 2013

    you're missing one BIG part of this equation – GOLD BUYS NOTHING… it is not a currency… however, the bitcoin has purchasing power – why bitcoin investing has sky rocketed and gold has stagnated… is gold a buy here? maybe… due to Cyprus? unlikely… one off event… inflation hedge? yes – definitely… but due to Cyprus? no way.

  6. Mr. Jonathan Monsengwo | July 17, 2013

    Attn Sir/Madam,

    Hope you're doing fine.

    This is Mr. Jonathan Monsengwo looking for reliable buyer of Copper Cathodes, Gold Dust, Bars and Nuggets as well as Rough Diamonds.
    If you can trace a final buyer we can talk on commission basis.

    Looking forward to have reply.

    Regards,
    Mr. Jonathan Monsengwo

Leave a Reply

Your email address will not be published. Required fields are marked *


− 1 = four

Some HTML is OK

© 2014 Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201, Email: customerservice@MoneyMorning.com