Buy Gold Before Europe Cracks

Last week Spanish newspaper El Pais wrote one of the biggest banks in Portugal needs new capital after they published very bad Q1-results. This is not good news for the Portuguese government. It may even be the beginning of a new European Crisis. Do you have your gold to protect your wealth?

Caixa Geral de Depósitos (CGD) has about one-third of all Portuguese deposits, so it’s not a little bank. Some analysts expect they need some additional €4 billion to survive, that’s 2.5% of the Portuguese GDP!

So even if the government can bend the rules to save the bank, the government itself is in trouble. Just when things went the right way (a little bit), a new crisis hits them in the face and knocks them down the floor. Can they pull themselves back up?

A possible downgrade would mean losing access to QE. While Portugal has enough cash for the rest of the year, the downgrade obliges them to run down their cash reserves. Portugal could also get slapped with a fine for running a 4.4% budget deficit in 2015.

And Portugal isn’t alone.

Greece is barely scrapping by, Spain has some of the worst political troubles in history, there is still the looming Brexit, the Italian banking system is rotten as hell, Belgium has some very troubling union issues, France also faces big strikes and now Portugal is putting the European dream in jeopardy.

So the world will be watching at the central banks again

But the central banks can’t save the world any longer. Leaders are still praying for economic growth, central banks did everything in their power to stimulate the economy, but it didn’t help. There are only 2 ways to grow: get more people to work or increase productivity. There doesn’t exit some fairy to wipe over the country and make the impossible true.

An alternative option would be to re-inflate the economy using gold. Central banks can buy gold at a higher price to stimulate inflation, the holy grail to reduce debt levels. It’s not talked about a lot, so maybe that’s why it has a good chance at succeeding.

When there is a currency war, every currency loses and nobody wins. But central banks can start buying gold at a higher price, technically this is a devaluation against gold. That’s when everybody wins. Jim Rickards is an expert on this solution.

It’s never been done before, but is may be the only way out. Harley Bassman from Pimco backed this idea and Kenneth Rogoff introduced it for the emerging countries. And you know how things can go in the financial world when the panic is back in the game, the solution is the one you least expect.