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.
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.