Silicon Valley Bank Failure Reminds Us of the Security Gold Provides

When you put your money into a bank, you expect to be able to get it back – in full, any time you want it.

The shocking Silicon Valley Bank headlines and worries about contagion throughout the banking system remind many of 2008 and the Global Financial Crisis that impacted so many Americans. As news of the bank run and the subsequent failure of Silicon Valley Bank on Friday rocked the U.S. banking system, it reminds us all of the value of gold.

Gold is the ideal liquid investment – and that provides security and peace of mind to those who own it. When you take physical ownership of your gold, you have access to your gold any time you want or need it. Gold is recognized as a wealth asset in every advanced country around the globe. No matter where you go, gold is recognized as a liquid currency.

What caused Silicon Valley Bank’s failure?

Most banks take in deposits and then lend out funds as mortgage or business loans. What hurt Silicon Valley Bank is that as the tech industry saw challenges, new deposits slowed, while withdrawals increased fast. The bank was forced to liquidate some of its holdings at a loss to meet withdrawal demand. This in turn decreased confidence in the bank’s health and spiraled into an actual run on Silicon Valley Bank

Simply put, the rapid rise in interest rates caused Silicon Valley Bank’s failure.

Here’s what one money manager said:

“This is the first sign that there might be some kind of crack in the financial system.” – Smead Capital Management’s Bill Smead told the Wall Street Journal.

Normally, at FDIC-insured banks, deposits up to $250,000 are insured. In a stunning and abrupt reversal over the weekend, federal regulators deemed Silicon Valley Bank a “systemic” risk to the banking system – and in this case decided to protect and insure all customer deposits – including those that exceed $250,000.

What is that system risk, regulators worry about?

A nationwide run on banks in big cities and small could crash the banking system. There’s no guarantee the rapid rise in interest rates we’ve seen in the past year won’t impact other banks. That’s what regulators are worried about now.

As a literal bank run occurred at Silicon Valley Bank as panicked Americans pulled their money out of the bank before it went under, it reminds us of the importance of “liquidity” – or having access to your money when you need it.

Gold Is One of the Largest, and Most Actively Traded Markets in the World

About $130 billion worth of gold is traded each and every day in all its forms, according to 2021 data. In fact, gold trades more frequently than many other assets on a daily basis, including stocks in the the Dow Jones Industrial Average and US corporate bonds, according to the World Gold Council.

The Bottom Line

Gold and silver bullion and coins can easily be converted to cash because of the large number of investors around the world who participate in the precious metals markets. There are many reasons to buy physical gold and silver and bank failures are just one of them.

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