The collapse of prominent regional banks like Silicon Valley Bank and Signature banks has caused widespread fear among people who kept money in banks. As a result, more and more people choose to hold their money in liquid form or invest in safe-haven assets like gold and silver. Of course, it's natural to want to protect your assets, but is holding onto liquid cash or investing in gold and silver the best course of action? In this article, we'll explore why people turn to these types of investments and what they mean for the economy.
Gold and silver are the most secure and reliable investment options, particularly during economic uncertainty. Over the last few days, gold prices have been the topic of discussion among investors across the globe as they hit a six-week high. As a result, investors are cautious and take refuge in certain assets such as gold. Demand for gold and silver has surged, propelling the prices to climb.
What is Silicon Valley Bank?
Silicon Valley Bank was founded in 1983 to provide banking services to technology companies in the region. Since then, it has expanded its reach to support businesses in diverse industries across the globe. As a subsidiary of SVB Financial Group, Silicon Valley Bank stood as the 16th largest bank in the United States, boasting assets amounting to $209 billion by December 2022. Today, the bank has branches in the United States, Canada, China, the United Kingdom, and elsewhere. The bank has gained a reputation for its technology and venture capital expertise. It works closely with entrepreneurs and investors to provide financing, strategic advice, and other services.
Silicon Valley Bank has faced some challenges despite its success in recent years. In 2018, the bank's stock price suffered after it lowered its growth projections. It also faced scrutiny over its lending practices, which some critics claimed were too risky.
What Caused Silicon Valley Bank to Collapse?
With the pandemic in full swing, Silicon Valley Bank (SVB) confidently acquired numerous assets deemed "secure", such as U.S. Treasurys and government-supported mortgage bonds. Fixed interest payments, however, could not keep pace with interest rate rises as they had previously. Consequently, the bank's assets were no longer valuable, leaving them with over $17 billion in possible losses. Matters took a turn when customers requested a staggering $42 billion in withdrawals last week, leaving the bank unable to cover the outflow and forcing regulators to shut its doors.
In the past week, the world witnessed the downfall of Silicon Valley Bank, swiftly followed by the closure of Signature Bank. Government intervention ensued, safeguarding the deposits of both banks and creating a lifeline for other financial institutions.
An example of SVB collapse in everyday life- Let's say a family invested in a property to earn good returns in the long run. However, their short-term expenditures have risen, and they struggle to pay their bills. As a result, they may have to liquidate their long-term assets to access the necessary cash in this situation. This decision can be difficult as it could mean losing out on potential earnings.
Rising interest rates and start-up and venture capital withdrawals of funds to run their businesses have resulted in short-term liquidity issues in this banking crisis.
The Fear of Short-Term Liquidity Crunch
One of the main reasons people are turning to precious metals investments is the fear of a short-term liquidity crunch in their wallets. In other words, people worry they won't be able to access their money when they need it the most. This fear is especially prevalent among those with bank deposits and invested in long-term assets like stocks or real estate.
What triggered the bank run?
The genesis of the bank run can be attributed to SVB's earlier questionable investment decisions. However, the event that ignited the firestorm occurred on Wednesday. The bank announced that it had incurred significant losses from the sale of several securities and, as a result, would be issuing $2.25 billion in new shares to fill the financial gap. This announcement triggered panic among customers, who immediately began withdrawing their funds in droves, compounding the bank's woes.
The bank's stock value plummeted by a staggering 60% on Thursday, causing a ripple effect that spread throughout the banking industry, with investors fearing a potential repeat of the catastrophic financial crisis of 2008.
By Friday morning, SVB was in complete disarray, with trading of its shares being halted and all efforts to raise capital or secure a buyer proving fruitless. Finally, California intervened, shutting down the bank and placing it under receivership by the Federal Deposit Insurance Corporation(FDIC). This move typically involves liquidating a bank's assets to pay off depositors and creditors.
The sad and abrupt end of SVB's operations serves as a stark reminder of the crucial role that sounds financial decisions and management play in the survival of any financial institution.
The Rise of Safe Haven Investments – Precious Metals
So, what are safe haven investments, and why are they becoming more popular? Safe haven investments are assets considered stable and reliable during economic uncertainty, e.g., silver, gold, platinum, dollar, etc.
In times of inflation and recession, people naturally buy gold to protect their wealth. This is because gold tends to hold its value even when other assets lose value. Gold is also a physical asset that can be easily traded or sold, making it a convenient investment method.
Silver is another protected investment that has gained popularity in such economic fear. However, silver is also used in a variety of industrial applications, which can make it a more stable investment over the long term.
The short-term liquidity crunch on wallets has been a significant concern. Consumers fear their liquid cash might be unsafe in banks that could go bankrupt. This fear has shaken faith in banks, as the banking system works on trust. Therefore, precious metals are a viable alternative to holding liquid cash.
The Benefits of Buying Gold and Silver
There are several benefits to investing in tangible assets like gold and silver. First, these assets are typically less volatile than stocks or bonds, making them less likely to experience sudden drops in value with a more stable investment choice.
People's concerns about the security of their money in banks have grown as a result of the downfall of significant regional banks like SVB. As a result, many are turning to these secure investments like gold and silver. From the future perspective, consumers can earn alternative income with price appreciation of gold, silver, and platinum.
Additionally, precious metals are often considered to be a hedge against inflation. As inflation makes it more difficult for people to afford goods and services, investing in these assets, people can protect their wealth from the effects of inflation in future.
Why are Gold and Silver Prices Spiked?
Market anxiety and rising interest rates are to blame for the rise in gold and silver prices. As a result, investing in precious metals has become an easy way to trade compared to other investment options like bonds and stocks, which require expertise and carry a risk factor.
Owing to the unexpected bank run, people have cash but do not want to deposit it in other banks because their trust has been compromised. Hence, people are more likely to buy precious metals to save their hard-earned money, either in dollars or in precious metals - Gold and Silver.
The SVB Descends into Chaos: What Comes Next?
Contrary to initial expectations, the government ultimately came to the aid of depositors rather than investors. As the Federal Deposit Insurance Corporation (FDIC) intervened, account holders were previously limited to accessing only $250,000, which proved insufficient for larger businesses like Roblox with sizable deposits.
Due to the sheer magnitude of the risk posed to the U.S. economy by Silicon Valley Bank's (SVB) failure, the Federal Reserve, the Treasury Department, and the FDIC stepped in. But, first, they guaranteed the deposits, a highly unconventional move by regulators.
The fallout from SVB's collapse was so significant that another bank, Signature Bank in New York, was also shut down after a panic-driven cash withdrawal by customers. State regulators took over Signature Bank to stabilize the financial system in response. However, federal regulators guarantee all depositors from both banks' money.
The incident pressed President Joe Biden to reassure the public and address their concerns about the security of their cash. In a White House statement, he stated," The American people can be confident that our banking system is secure, and their deposits will always be accessible when they need them."
At BOLD Precious Metals, you can buy Gold and Silver at the lowest prices.
As the world grows increasingly uncertain and markets continue to waver, it's natural to feel a sense of fear and concern about the state of our financial system. Bank collapses, currency devaluations, and economic uncertainty are all too real concerns in today's world.
But one asset that has stood the test of time and proven its worth as a safe haven in times of economic turmoil: is precious metals. And at BOLD Precious Metals, we're proud to offer some of the industry's best prices on gold and silver.
You're not just investing in a commodity when you buy gold and silver from us. You're investing in a legacy of stability and security that spans centuries. And today, in the face of market fear and uncertainty, they play a crucial role in protecting investors’ portfolios from volatility and risk. So whether you're looking to diversify your holdings, hedge against inflation, or preserve your wealth for the long term, buying gold and silver is a smart move.
Flawless Process of Buying Precious Metals At BOLD
We understand that buying precious metals can seem complicated. That's why we've made it our mission to provide our customers with a seamless and hassle-free buying experience. Our team of experts is here to guide you through every step of the process, from selecting the right products for your needs to ensuring that your order arrives safely and securely.
So don't let fear control your financial future. Instead, take control by investing in gold and silver from BOLD Precious Metals today. With our unbeatable prices, unparalleled customer service, and commitment to quality, you can rest assured that you're making the best and most secure investment. Call or email us at: 1-(866)454-2653 [email protected]
