In 2007, I was living in London. On my way to my MBA classes one September morning, I came across a bizarre scene as I emerged from the tube station near the school.
A large group of people were standing in front of a Northern Rock Building Society branch. (A building society is the British equivalent of an American credit union.)
It was early. The bank wasn’t due to open for several hours. Yet there was a line, or queue, as the British call it.
I asked a woman what was happening.
“Bank’s out of money. They went and asked the government for money,” she says. “I’m here to make sure I get my money. All of it, right now.”
I stared at her in shocked silence. I didn’t understand. A man behind her read my thoughts.
“Run on the bank, love,” he said to me.
Of course, I’d heard of a run on a bank — the panic that occurs when a bank gets into trouble and doesn’t have enough cash, so depositors turn up in person and demand their money on the spot.
Which, incidentally, can put a bank out of business if they can’t stump up the funds.
It happened in the Great Depression… and in the 1946 movie It’s A Wonderful Life when George Bailey (James Stewart) used his own honeymoon funds to stave off failure of the Bailey Brothers Building and Loan.
I believed bank runs were a relic of the past and, frankly, impossible in modern times. Yet here it was — a bank run going down right in front of my own eyes in September 2007.
Northern Rock’s CEO tried to deny what was happening. He told journalists there was no run, although “we were certainly very busy today.”
But in the end, he couldn’t deny the cold, hard truth. Northern Rock became the first British bank in 150 years to fail because of a run.
And this was no small, obscure bank — no. This was the U.K.’s fifth-largest lender that had been in business since 1965.
The British government scrambled to prevent hysteria from spreading and other banks from suffering the same fate. The chancellor appeared on television daily, full of explanations and pleas for everyone to stay calm.
In the days and weeks that followed, other people I knew started withdrawing a lot of money from their banks. I myself took some out, although not every penny.
Fortunately, no other bank failed due to a run.
It did make me wonder… What would have happened if all the banks closed and no ATMs worked?
This scenario is precisely the reason that makes investing in precious metals such a good idea. And, if you’re smart, imperative. One of the top reasons for holding metals is for insurance against financial system failure.
Financial Armageddon sounded like science fiction to me… until I saw the line at Northern Rock.
And not long after Northern Rock came the Greek debt crisis of 2009–10.
Greek citizens awoke one day to find severe limits on how much they could withdraw from their banks. Austerity measures were implemented, and the mighty birthplace of democracy almost collapsed entirely.
I have a dear friend from Greece who still has family members living in Athens and nearby Cyprus. He reported his father couldn’t withdraw money, saw his government salary and benefits slashed and was informed by the bank they would be keeping a portion of his deposit funds as a sort of wealth tax.
After what I witnessed on the streets of London and hearing my Greek friend’s story, I no longer underestimate the potential havoc of a financial squeeze. Nor do I discount what powers the government may assert in a crisis.
If you are at all inclined to dismiss the idea that holding physical gold, silver or other precious metals could be beneficial for financial system failure scenarios, I strongly recommend reconsidering.
If you don’t want to take my word for it… Observe what the wealthy are doing. What the ultra-rich do with their money is one of the most important bellwethers to follow for your own portfolio.
In a 2012 study of family offices, 47.1% said they had invested in gold. That’s a significant number of wealthy people holding gold.
Not ETFs… not futures… actual gold bullion and coins.
Owning physical gold or precious metal is a critical protection. If worse comes to worst, you must have something tangible of intrinsic value to trade for things you need.
And you can bet the value of that gold will rise if it becomes the post-collapse currency of choice.
Here is how you can start investing in precious metals right now — and get the same “gold insurance” that the wealthy have.
To your wealth,
Editor-at-large, Unconventional Wealth
Steffi Baker is the editor-at-large of Unconventional Wealth. For the past 10 years, she worked with a small strategy consulting firm that dealt exclusively with wealth-management companies, helping them market themselves to ultra-high-net-worth clients.
Through this line of work, Steffi attended events in London and New York and hobnobbed with household names and international...