Capital Controls, Bank Bailouts & Escalating Fear

With continued volatility in major markets, as well as gold and silver, today King World News interviewed James Turk out of Europe. Turk discussed the capital controls being proposed in Europe, bank bailouts and escalating fear, but first, here is what Turk had to say about the recent action:  “It has now been 16 trading days since the May low, Eric, which means that the base being formed in the precious metals is getting stronger with each passing day.  Importantly, prices have been moving away from the May low, with both gold and silver up more than 4% since then.”

“These are exceptional gains for such a short period of time, but sentiment remains at rock bottom.  One reason for the miserable sentiment is that the gold price has fallen half of the trading days since the May low.  The same for silver, and some of the daily price declines have been huge, which really affects sentiment negatively.

But these low sentiment readings are bullish.  It is a sign that a market is sold-out and a rally is due, even if it is just a relief rally.... 

 

“But when sentiment readings reach the extreme levels we are now seeing, both in regard to their absolute level as well as for the length of time that sentiment has been so negative, more often than not they mark key turning points, which is what I think is happening now, Eric.  Gold and silver are setting up for big summer rallies, just like last year.

There is so much financial uncertainty prevailing today, people are increasingly questioning the reliability of all financial assets.  All national currencies are suspect, as is sovereign debt for nearly every major country in the world.  Almost every day banks or countries are being downgraded by the credit rating agencies, which is never a good sign for financial assets.  

Euros, dollars, bank deposits and government paper are not safe havens, so who would want to hold any?  And the key word here of course is ‘paper,’ which is becoming much less safe as the global financial system unravels.  The simple question one needs to ask is, why take the risk of owning any paper?

The latest news here in Europe, Eric, is the EUR 100 billion bailout proposed for Spanish banks.  There are still dozens of unanswered questions like, where is the money coming from?  Are all the banks going to get bailed out, even the really bad ones that are in the worst shape?  How much are the Italian and French banks going to need?

Here's the most important question for Spain, Eric. Is EUR 100 billion enough?  The London Telegraph says a research report by one of the big US banks indicates that EUR 350 billion may be needed, which is not surprising given how badly Spain's economy is doing.

In short, this bailout is not likely to be any more successful than any of the other bailouts because of their very nature.  The problem is these banks are not being recapitalized with accumulated savings.  The Spanish government is borrowing more money, adding to its debt load, which is already too high.  Borrowing more money is just making the problem worse.  The politicians still don't understand that they have reached the end of the road.

So my strategy remains the same, Eric.  Continue to accumulate gold and silver on a regular cost-averaging program as your savings.  Everybody needs savings, but it doesn't make sense to save in fiat currency because the low interest rate available does not compensate you for the risk. 

Similarly, if you are inclined to take the risk that comes with investing, then consider taking the same approach with the mining shares.  This cost-averaging strategy eliminates the emotion that can cloud one's judgement.  But this strategy also ensures your participation in this once-in-a-lifetime precious metal bull market.

Lastly, Reuters reported today that EU officials are discussing capital controls.  The central planners want control of your money, which is another good reason to own physical metal instead of paper.  The bottom line is these crazy proposals by central planners are exactly the type of things you see at this stage of the cycle as fear continues to escalate.”