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Collapse in Cyprus Triggers Unintended Consequences

April 1, 2013 - There are traders and investors who believe that by imposing losses on investors and reducing the liabilities in the banking system in Cyprus, the powers in the European Union have successfully addressed the banking crisis. At their most benign, opponents believe the thrust to tax bank deposits in the small Mediterranean country was just unfair.

There is currently still uncertainty about remaining deposits in Cyprus, capital controls, and even the solvency of the Cyprus government itself. Additionally, markets in other troubled European Union economies are very nervous about the possibility the same measures could take place.

For investors in gold, current events in Cyprus are more of an optimistic sign than a headache. Everything over 100,000 euros in a Cyprus bank account, including foreign investment, will be taxed at 40 percent, but owners and holder of physical gold bullion are looking at a very bullish scenario.

Panos Kostopoulos of AMP Gold Bullion Merchants Ltd in Nicosia said immediately after the Cyprus presidential elections on February 24, he strongly recommended Cypriots buy gold in order to protect their hard-earned money in the light of wide-spread rumors of a haircut on deposits that were already making the rounds at the time.

Kostopoulos said no one heeded his warning, but following the official announcement of the government’s decision to tax bank deposits, he received orders for over 15kg of gold within one day.

There is currently a cap on daily withdrawals from Cypriot banks of 300 euros, making the purchase of gold with cash difficult if not impossible in large quantity. Cypriots are then forced to often buy gold that is currently located out of the country, thereby delaying their actual physical possession of their own gold following the imposition of the bank taxes and withdrawal limits. Kostopoulos joins many other Cypriots in not being optimistic the capital controls will be lifted soon.

It is astonishing to think that the people of Cyprus, having witnessed events in nearby Greece and understanding that the country had to reckon with the European Union over its financial system, did not take more proactive measures in purchasing physical gold bullion.

With European Union officials already calling the banking deposit tax in Cyprus a template that could be used in any other European Union sovereign nation, it is even more astonishing to watch European Union member countries shirk recent events and believe that their financial system is any different.

The time to purchase physical gold bullion is certainly before financial problems of a country become so unmanageable they must cede the sanctity of their citizenís bank accounts.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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