Fear has been increasing in the markets last week, leading to a continued fall in equities and rise in gold as a safe haven. The real issue at the moment is stability of the banking sector. Citi is the headline but there are many others out there in as much or more trouble. That's why LIBOR stubbornly refuses to fall and why banks won't lend despite government pressure.
It's a double-edged sword for the banks. Their financial base is being eroded by falling stock values (their own stock and the stock held as collateral on outstanding loans), and their customers' performance is going to plummet over the next few years due to the recession, hitting banks' income. Because most banks are so over-leveraged many will not survive. Some will be bailed out by government, some will amalgamate with others and others will go to the wall. The problem will come if (or when) ordinary customers lose their money or can't get hold of it. That is the risk -- a run on the banks. That is what governments are terrified of and that is why they are all in a blind panic.
You should have already made provision for these things -- make sure you have cash 'in the sock drawer', at least two month's worth for all expenses. If you haven't, do it now. The interest you will lose will be trivial at today's rates and you can always put it back in later. You will feel much more comfortable with a couple of month's cash to hand.
If you have funds available, and you have not already done so, put some money into gold coins. For UK taxpayers, UK legal tender coins (sovereigns and britannias) are free from CGT. All gold bullion and coins in the EU are free from VAT. I don't suggest you buy gold coins from Ebay unless you really know what you are doing. The best way is to phone a gold coin dealer, agree a price and then go and pick them up in person. Keep them in the same sock drawer you use for your folding cash and don't tell anyone. If you are going to invest a large amount in gold, consider asking your own bank for a safe deposit box. I would not entrust my gold to any gold coin dealer to store for me.
It'll be an interesting week ahead!
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