Monetary Disaster Insurance

What’s the world coming to when one of the biggest, oldest insurance companies on the planet decides that gold — yes, gold — is its own best insurance against monetary disaster?

That’s what I found myself thinking a few weeks ago when Munich Re, one of the 20 largest financial services companies in the world, said it was storing bullion and cash in the company’s vaults out of disgust with the European Central Bank (ECB) and its negative interest-rate policy.

I mean, once upon a time, hoarding gold was the domain of the tinfoil-hat crowd — think of Scrooge McDuck sitting in his bunker counting out Loonies and Krugerrands.

Saying “I like gold” used to be alternative, and a little “out there.” Like vinyl albums and pot, gold is now part of everyone’s private stash.

OK, for me, make that two out of the three. But you get my point: Gold is going mainstream.

Or perhaps, more accurately, the mainstream is starting to go for gold.

Munich Re, mind you, has been around for a long while.

Founded in 1880, it’s seen nearly 150 years’ worth of disasters. The company paid out the inflation-adjusted equivalent of $150 million for the 1906 San Francisco earthquake. It endured the loss of its U.S. operations at the outset of World War II, outlasting the Third Reich and the war’s devastation of Europe. When the Twin Towers got hit, Munich Re paid out nearly $2 billion in claims.

But, in the company’s view, the ECB’s negative interest rates might be the biggest disaster it’s ever had to prepare for.

“Everything is out of control here,” said Munich Re’s CEO Nikolaus von Bomhard to a gathering of reporters on March 16. “This is the official end of monetary policy.”

Ouch. Strong words coming from someone in the dour, no-nonsense $570-billion world of global reinsurance.

Monetary Disaster Insurance – Gold

Herr von Bomhard wasn’t finished. He warned of “devastating side effects” and a “massive redistribution from poor to rich” as Europe’s economy circles the drain.

Then he added: “A government cannot simply allow this to happen!”

But it did. And it has.

Munich Re’s solution? Load up on gold and cash, and store both in the company’s own vaults.

By the standards of a company the size of Munich Re, the amounts aren’t very big. It yanked $11 million in short-term deposits out of the bank (saving itself, by my count, about $44,000 in the ECB’s 0.4% “penalty interest”).

And Von Bomhard said the company is already building its position in gold, though he didn’t give specifics. Munich Re’s 2015 annual report, however, said it held $331 million in bullion.

So, is Munich Re just trying to make a statement about the ECB? Or is it a real strategy to deal with the central bank’s negative rates?

Von Bomhard told reporters that it’s a little of both: “We are just trying it out, but you can see how serious the situation is.”

The rest of Germany’s financial establishment is getting restive, too. The chief economists of Germany’s largest savings banks warned the ECB about its “hasty monetary policy” in an extraordinary communiqué earlier this month.

And thanks to negative interest rates, those savings banks are starting to ponder another radical idea: storing bales of euro paper-currency deposits in their vaults, rather than storing it electronically with the ECB (where the money would be subject to negative interest rate penalties).

What strikes me most is that the solutions these large financial institutions are trying are the same themes that The Sovereign Society has been writing about for a long, long time: Get a good safe and don’t trust that your bank will always be there for you…

And, oh yeah — buy gold, because the mainstream crowd is realizing that having an alternative store of wealth isn’t so “out there” after all.

Kind regards,

JL Yastine
Editorial Director, The Sovereign Society

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Monetary Disaster Insurance Gold Demand
Monetary Disaster Insurance