Today’s AM fix was USD 1,255.25, EUR 912.05
and GBP 765.49 per ounce.
Yesterday’s AM fix was USD 1,245.75, EUR 906.13 and GBP 757.76 per ounce.
Yesterday’s AM fix was USD 1,245.75, EUR 906.13 and GBP 757.76 per ounce.
Gold rose $21.90 or 1.77% yesterday, closing at
$1,262.50/oz. Silver soared $0.53 or 2.67% closing at $20.40/oz.
Platinum climbed $15.25, or 1.1%, to $1,386.99/oz and palladium also
rose $1.50 or 0.2%, to $735.20/oz.
Gold
in U.S. Dollars, 5 Years – (Bloomberg)
Gold neared a three week high after climbing
the most in 7 weeks, on strong physical buying in China and a weak
dollar. Gold has recovered from a 5 month low on December 6 to reach
$1,268/oz yesterday, its highest price since November 20. Physical
demand, especially from Asia seems to be outweighing the jitters
regarding the Federal Reserve’s much mooted ‘tapering’.
Silver
in U.S. Dollars, 5 Years – (Bloomberg)
Shanghai Gold Exchange’s spot contract, rose
for a third day to 15,224 kilograms yesterday showing continuing
robust demand in the emerging global economic powerhouse.
Markets may have already priced in the
possibility of a December tapering as prices did not show any
weakness after last week’s stronger than expected non-farm payrolls
data. Rather, gold has risen and hedge funds have rushed to cover
their short positions ahead of the Fed meeting next week and due to
growing concerns of a short squeeze.
However, market participants may again be
proved wrong regarding tapering as there is a real risk that the
Fed’s $85 billion bond buying programme continues. There is even a
chance that the Fed’s bond buying programme increases due to the
very fragile U.S. economy.
The dollar index is trading near a six-week low
today as investors evaluate the uncertain outlook for the U.S.
economy and dollar in 2014.
BOE
Says U.S. “Could Do Today” And U.S Authorities Doing Simulation
Exercises
The U.S. already has in place plans for bail-ins in the event of banks failing. Indeed, the U.S. has conducted simulation exercises with the U.K. in recent weeks and will do so again in 2014.
The U.S. already has in place plans for bail-ins in the event of banks failing. Indeed, the U.S. has conducted simulation exercises with the U.K. in recent weeks and will do so again in 2014.
On
October 12, Art Murton, the FDIC official in charge of planning for
resolutions, and the Bank of England’s Deputy Governor Paul Tucker,
both confirmed that the U.S. system is ready to handle a big-bank
collapse.
The
Bank of England’s Tucker,
who has worked with U.S. regulators on the cross-border hurdles to
taking down an international firm said that “U.S.
authorities could do it today — and I mean today.”
The
Bank of England
“A global financial system will not survive
if we don’t crack this problem”, said Tucker.
The 2010 Dodd-Frank Act empowered the
Federal Deposit Insurance Corp. (FDIC) to seize a company or bank and
dismantle it if regulators think a bankruptcy would pose a
significant threat to the financial system.
This resolution authority hasn’t been tested,
and the FDIC Chairman Martin J. Gruenberg, said his agency will
disclose a full description of its approach by year-end — opening
the idea to public comment.
Gruenberg said that China, Switzerland, Germany
and Japan are among nations close to reaching arrangements with U.S.
regulators with regard to dealing with mechanisms for failed banks.
U.S. regulators are working with German and
Swiss counterparts on joint white papers similar to agreements
already in place with the U.K. for how banks governed by multiple
jurisdictions could be unwound by their host nations, Gruenberg said
in remarks prepared for a speech in Washington on October 13. The
FDIC will secure memorandums of understanding on bank resolutions
with China and Japan soon, he said.
“It is critical that home and host
jurisdictions understand well the approach to resolution of their
counterpart and work together to develop a cooperative approach,”
he said.
Germany and Switzerland share the U.S.
preference for a so-called single point of entry, in which the host
nation takes over a failed bank’s holding company, imposes losses
on shareholders and lets healthy subsidiaries stay open. The approach
depends on long term debt held in the parent to absorb losses and
capitalise a healthy bridge company, Gruenberg said.
Federal
Deposit Insurance Corp. (FDIC)
The agency is consulting with the Federal
Reserve on a future rule to set a minimum and importantly it has
conducted and is conducting simulation exercises.
U.S. regulators will run simulation exercises
with U.K. counterparts this year and in 2014, Gruenberg said.
Gruenberg
appeared to warn that the UK was vulnerable to bail-ins when he said
that
“Nearly 70 percent of the on- and off-balance sheet assets of our major institutions are held in the U.K,” he said. “There is no close second.”
“Nearly 70 percent of the on- and off-balance sheet assets of our major institutions are held in the U.K,” he said. “There is no close second.”
How
Likely Are Bail-Ins?There
are differing opinions as to the severity of the on-going financial
crisis, and whether it has turned a corner. There are two very broad
‘schools of thought’.
The first school believes that the U.S. Federal
Reserve, along with partner central banks internationally, has
successfully stabilised the global financial system through low
interest rates and quantitative easing, while the EU has managed to
help recapitalise banks and avoid bank insolvencies in the European
Union and and the breakup of the European Monetary Union (EMU).
The second school is more skeptical of this
view and believes that many banks globally remain vulnerable to
insolvency because they are being kept on life-support due to
extremely accommodating central bank measures including near zero
percent interest rates and quantitative easing. Banks are also being
supported through the use of almost fictional, though internationally
endorsed, accounting treatment for their asset books, such as
mark-to-model valuations for their over-the-counter (OTC) derivatives
exposures and by failing to have realistic valuations on problematic
property loan portfolios.
Many sovereigns nations remain vulnerable to
sovereign debt crises. The Eurozone debt crisis and other sovereign
debt crises have been solved for the moment through various forms of
ultra loose monetary policies, quantitative easing or debt
monetisation.
All
short term panaceas have not addressed the root cause of the global
debt crisis – too much debt.
Indeed, the concern is that the solution of
socialising the debt and transferring it to the sovereign and
taxpayers, has simply bought some time and may make the crisis much
worse in the long term.
We believe the second school will be proved
right in the coming months and years; therefore, depositors with
deposits in certain banks, or planning to place deposits, must look
at the likelihood of and how likely that bank is to get bailed in.
This likelihood would be a function of the
strength of the individual bank, which jurisdiction that bank is
governed by, which financial systems and economies the bank is
exposed to, the extent to which the bank has potentially problematic
property or derivatives exposure, and whether deposits are insured by
deposit protection schemes, and to what extent are they insured.
In practice, the financial markets would
normally do this analysis, but the previous approach of bail-outs and
across the board central bank support appears to have clouded the
analysis.
The movement by international monetary and
financial institutions towards a bail-in regime and the extent of
preparation for bail-ins suggest that bail-ins will happen should
banks get into trouble again.
Recent statements by Mario Draghi suggest that
depositors might be bailed-in in the future.
In a letter on the July 30th to Joaquín
Almunia, the Vice President of the European Commission, Draghi
suggested that bondholders might be spared in future, for fear that
once burned bond investors may not return.
This
would strongly suggest that sovereign governments would be required
to make a decision as to whether they would absorb losses or instead
force bailins on
depositors. As do the preparations being put in place by the Bank of
England and the FDIC.
Download
our Bail-In
Guide: Protecting your Savings In The Coming Bail-In Era(11
pages)
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