Is Gold Really The Last Safe Haven?

Analysts at Bank of America made waves recently when they stated that gold could become the “last perceived safe haven standing.” Those same analysts believe that gold could hit $3,000 an ounce by next year.

But surely gold can’t be the only safe haven?

Treasuries have long been touted as a safe haven. And for survivalists there are the 3 Bs: beans, bullets and bandages.

Even farmland, or land in general, has been touted as a safe haven , as they’re not making any more of it. So why gold?

Key Takeaways

• Bank of America analysts warn that US fiscal policy is potentially unsustainable
• Interest costs could soon exceed size of current deficits
• Growing debt leads to concerns as to whether markets can absorb that debt
• That could leave gold as the ultimate safe haven asset

Gold Prospers in a Time of Financial Upheaval

According to Bank of America analysts, one of the factors behind gold’s safe haven status is the potentially unsustainable fiscal policy of the US government. With budget deficits nearing $2 trillion, and a national debt approaching $36 trillion, it’s not surprising that many people think government spending is out of control.

But what do those deficits really mean?

When the government spends more than it takes in, it has to issue debt in order to fund that spending. That debt comes in the form of US Treasury bonds, “Treasuries”, which are still considered by many to be a safe haven asset.

These bonds are backed by the full faith and credit of the US government, and in recent decades have never been intentionally defaulted on. Thus when people buy these Treasuries, they expect to be paid back in full, with interest.

That hasn’t been a problem yet. And no one expects the US government to default on any of its debt yet.

But with deficits and the national debt rising, and interest alone on the national debt costing over $1.1 trillion in 2024, Bank of America’s analysts are sounding a warning.

To think that so many people think of Treasury securities as a safe haven, yet Bank of America is warning that excessive issuance of that safe haven could be dangerous is certainly something worth pondering.

Gold vs. Fractional Reserve Banking

Another issue that could play a role in people’s attitudes toward safe havens is the fact that one of the most trusted safe havens has shown increasing weakness in recent years.

Most people think that money in the bank is as safe as, well, money in the bank. But 2023 saw the 2nd-, 3rd-, and 4th-largest banking failures in US history.

Thanks to federally-backed deposit insurance, bank runs and bank failures are far less frequent now than they once were. But bank failures haven’t completely disappeared, and the failures in 2023 may have been a warning sign.

According to the most recent Federal Deposit Insurance Corporation (FDIC) statistics, there are over $10.6 trillion in insured bank deposits, with only $129 billion in insurance covering them.

That’s below the statutory minimum reserve ratio of 1.35, which FDIC only met in 2018 and 2019. But what that means is that if enough banks fail that FDIC has to pay out those $129 billion in funds to bank depositors, the agency will then have to fall back on its Treasury line of credit.

FDIC’s line of credit with Treasury right now is up to $100 billion. So that means that FDIC could sustain total banking system deposit losses on insured deposits of up to $229 billion.

What would happen if FDIC needed more than that? Congress could extend that line of credit even further. But what might the consequences of that be?

The line of credit with Treasury is just that, a line of credit. Treasury doesn’t have $100 billion just sitting around waiting to spend on unbudgeted expenses.

What would likely happen is that Treasury would have to issue new Treasury securities to come up with cash to fund FDIC. And those Treasuries would add to the national debt, exacerbating the problem that Bank of America has pointed out.

Of course FDIC could also run to the Federal Reserve, as it did in 2023, as the amount of money needed to close the failed banks exceeded the amount of money in the Deposit Insurance Fund. But doing that could prove inflationary, as it impacts the Fed’s balance sheet as we saw on the weekly H.4.1 releases.

But let’s not get lost in details. The important takeaway is that banking failures can occur at any time, and the surprising failures last year demonstrate that even when everything looks fine, appearances can be deceiving.

Gold as a Safe Haven

So is gold really the safe haven Bank of America makes it out to be? Only time will tell.

But if a bank that large is starting to sound alarm bells about the growing national debt and the impact it could have on the economy, maybe it’s time to start listening.

Warnings about the national debt are nothing new, and so the temptation many people have may be to ignore those warnings, likening them to a boy crying wolf.

But can the national debt really keep growing forever without any consequences?

If you’re looking at an ever increasing national debt and wondering what’s going to happen 10, 15, or 20 years down the road, you’re probably not alone. But what can you do?

Well, how about listening to Bank of America and thinking about gold as a safe haven?

With a long history as a safe haven, inflation hedge, and store of value, gold has been trusted for centuries during times of financial turmoil and economic uncertainty.

No one knows what’s coming down the pike in this country, but fear of recession seems to be growing.

If you’re thinking about buying gold, there are numerous ways to do so. From making direct purchases of gold coins to rolling over retirement savings into a gold IRA, there are numerous options available to you.

Goldco has helped thousands of people just like you benefit from owning gold, and with over $2.5 billion in precious metals placements and over 6,000 5-star reviews, we pride ourselves on being one of the best gold companies in the country.

Don’t let Bank of America’s warnings fall on deaf ears. Call Goldco today to learn more about how you can put gold’s safe haven abilities to work for you.