Part 1 - Era Of Depositor Bail-In Cometh

GoldCore's picture

Today’s AM fix was USD 1,213.00, EUR 892.57 and GBP 741.13 per ounce.
Yesterday’s AM fix was USD 1,219.00, EUR 898.50 and GBP 743.07 per ounce.

Gold rose $3.70 or 0.3% yesterday, closing at $1,222.70/oz. Silver slipped $0.03 or 0.16% closing at $19.12/oz. Platinum climbed $14.50, or 1.1%, to $1,352.25/oz and palladium rose $3, or 0.4%, to $711.97/oz.

Gold in euros fell to 892.16 euros/oz, the lowest since August 3, 2010. Gold in euros has fallen 30% this year, against 28% for gold in dollar terms. Gold fell to 740.64 pounds/oz, the lowest since August 3, 2010. Gold has fallen 28% in sterling terms this year.

Gold is higher in Aussie dollars this morning, due to weak Q3 GDP growth and concerns about the Australian economy.

Gold fell to the lowest in almost five months in London this morning as very tentative signs of improving U.S. economic growth added to continuing speculation that the Federal Reserve may reduce its massive $85 billion per month bond buying programme.

U.S. manufacturing accelerated at the fastest pace in more than two years in November, data showed on December 2. Less positive data showing consumer sales on Black Friday were worse than expected was ignored.

Gold is set for the first annual drop in 13 years as trend following traders and more speculative investors lose faith in the metal as a trade. Store of value and financial insurance bullion buyers remain steadfast and continue to buy physical on the dip - especially in Asia and of course China.

Cross Currency Table - (Bloomberg)

It is interesting to note that the hedge fund Tiberius, who have been highly vocal as bearish on gold for years have changed their long term position. They remain bearish in the short term but believe that weak hands have been washed out of the market. They believe that strong hands will propel prices higher again - possibly later in 2014.

Gold in Pounds, 5 Year - (Bloomberg)

Minutes of the Fed’s October meeting released November 20 showed that policy makers expected an improving economy to warrant trimming debt purchases in coming months. The Fed next gathers on December 17-18.

Reducing the huge bond buying programme has been suggested for some years now. As ever, ignore the jawboning - watch what they do, rather than what they say.

Gold in Euros, 5 Years - (Bloomberg)

Era Of Bond Holder Bailouts Ending - That Of Depositor Bail-In Cometh (Part 1)

The era of bondholder bailouts is ending and that of depositor bail-in is coming.

The changing financial landscape post crisis poses challenges to savers and investors globally. It is important we consider how savings and investments can be protected.

Bail-ins are a risk in the coming years and yet there is a lack of appreciation of this risk as there was a lack of appreciation of the risks posed by property bubbles and the global debt crisis.

This research note is therefore timely and welcome as there is a lack of research regarding a bailin  and bail-ins and the ramifications thereof.

It will take a number of years for the final configuration of the new financial order to become clear. This means that there are difficulties inherent in selecting appropriate investments when the ultimate outcome is unclear. Apart from that, what we do know at present is that there are straws in the wind that should concern savers.

The approach taken with failing banks in Europe, to in one form or another socialise the debts across taxpayers created a so called doom loop. As the banks got weaker more and more of their debts were passed to already strained sovereign treasuries, weakening them and making it more difficult for them to intervene early in stressed banks. The realisation that, with banks which were multiples in size of the sovereign regulating them, this could not go on was slow to emerge but it has now done so.

In an as yet to be determined but medium term future, banks which face losses will have to act in an avowedly capitalistic manner. First reserves and equity, then senior, then junior debt will be used as the risk capital in order to fill these debt holes. What is new is that if losses continue, after burning through this capital, rather than the state, it is depositors who will be in play.

Beyond that we see other threats to the stability and profitability of the banking system. The EU has launched a consultative process on the sustainability of the present financial system and has concluded in early work that a much more hybrid system, merging the bank based continental system and the Anglo Saxon market scheme, is needed.

Combined with the inevitability of inflation (even the desirability of same in so far as it entails in its early stages a recovered economy), these suggest that savers will face a complex and perhaps lower return environment in the medium term.

In that context a move to increased allocation of savings to alternative investments, including a prudent allocation of some 5% to 10% to precious metals, is a sensible policy.

This research note is very useful in pulling together some of these strands and others and should be required reading for savers internationally and for medium and long term investors.

*Dr Brian Lucey is Professor of Finance at the School of Business  at Trinity College Dublin. He studied at graduate level in Canada, Ireland and  Scotland, and holds a PhD from the University  of Stirling. His research interests include  international asset market integration and  contagion; financial market efficiency, particularly  as measured by calendar anomalies and the  psychology of economics.

His research on gold has established that gold is important as a long term diversification due to gold’s “unique properties as simultaneously a hedge instrument and a safe haven.”

Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages) 

Download our Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications (51 pages)  

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Kina's picture

I have commenced spreading cash between Aust.


I notice Australia still has its bank deposit guarantee scheme going.....until it doesn't of course...


As Westpac notes on its website.... Westpac Term Deposits are covered by the Australian Government Guarantee (capped at $250,000 per account holder).



lasvegaspersona's picture

dunno...seems that a bail-in in the USA would send a bad message about the US$$ which must maintain confidence. I'd guess they'd do hyperinflation before a bail-in.


On the gold issue, how can one get super bullish on a derivative (paper gold promises) that can be created at will? I believe the paper will continue to be printed until there is no more physical gold to support the paper market. Then it will close and all who still hold these promises will be cashed out. Those who hold bullion will have to wait until  serious folks who actually want the security of physical gold create a new market for physical. Then we willl see what undilutable gold metal is really worth.

hidingfromhelis's picture

Bail in is ongoing; it's called inflation.

0b1knob's picture

Is there any way to have cash where it cannot be stolen by these criminals?   I mean other than having physical cash or converting it into gold or bitcoin?

I thought about opening a Canadian brokerage account but last time I checked they would only take Americans if they were Canadian residents.

Walt D.'s picture

You can purchase T-Bills directly from the Federal Reserve and cut out the middle man. Redeem only those you need to cover your monthly transactions.

Or open a TBill Mutual Fund with check writing priviliges - I think Vanguard has such a fund.

 The worst place to have any large amount of cash is in bank. The problem with a bank is that they are gambling with your money, andin a zero interest rate environment you are getting nothing in return. Most people do not realize that thebanks convert their deposits into casino chips and are gambling. If they sustain a string of losses, they do not have anything to pay you back. In is not like your money is dollar bills locked in the bank's vault. (In fact, things are worse because the bets are leveraged).

Matt's picture

I don't understand why they consider Canadian Banks to be so safe, consider other reports show them as being pretty under-capitalized. $100,000 CAD CDC insurance is quite a bit less than 100,000 Euros or $250,000 USD. They already stated bail-ins are possible here. 

Renfield's picture

The federal budget last April enshrined bail-ins, in Canada just like everywhere else in the so-called "Western economies".

This, along with pretty much all other relevant economic news, tends not to be well-known among the general public. Guess it conflicts with the mythology that so much Canadian propaganda relies on. Me, I kind of think they're not going to put into this year's budget something they don't intend to actually use, but then, I'm a little slow catching onto the Canadian identity myth.

Stop me if you've heard this before: "Canadian banks are well capitalised. It's different here, this time."

CaptainSpaulding's picture

All my money vaporized into Goods and services heaven

ebworthen's picture

Bernanke, when asked directly twice at the press conference right after the Cyprus bail-in's - if they would ever be used in the U.S. in a crisis - did NOT say they would not be used.

He did not disavow them, nor say they were wrong, only that he did not foresee them being necessary in the U.S. because of FDIC.

In other words, Bernanke condoned bail-in's as a valid policy tool.

El Vaquero's picture

The fed had a paper last year that pretty much stated that bail-ins would be used in the US and the UK in the event of another banking crisis.  It was full of financial jargon, so the average schmoe will not be able to understand it, but they have already stated that bail-in is the way they'll go.  Bernanke may not state as much publicly, but, well, fuck him. 

ebworthen's picture

Read that paper, and you are correct.

FED and Bank of England agreed bail-in's were a "valid policy tool".

When theft is condoned (Jon Corzine) you know you need to cover your ass and good.

Papasmurf's picture

FDIC couldn't cover JPM's fines much less JPM's collapes.

SilverIsKing's picture

For people who like the idea of keeping their money in the bank, they'd be better off keeping their cash in a safety deposit box. They could avoid the rumored interest charges as well as any potential bail-ins while their money remains 'safe' in the bank.

Even with banks paying 0.1% interest, it's worth missing out on this measly amount for the avoidance of the bail-in.


The Wisp's picture

you do know that storing cash in a safety deposit box is against bank policy, government regulations and is subject to seisure..

 and if the person dies you ahve to have witnesses there and bank personel before you open the box

StychoKiller's picture

The only things they'll find in my safety deposit boxes are...well, wouldn't you like to know?

A82EBA's picture

or just convert your cash into walmart gift cards which dont expire since youre likely to eat $140,000 btwn the ages 50 to 85

Marco's picture

FDIC has full faith and credit ... if the guarantuees aren't honored the dollars in your safety deposit box won't do you much good, since it will mean total collapse of the state you won't even be able to get them out so they're not even good as toilet paper.

The only advantage of storing dollars outside of the banking system for sub deposit guarantuee amounts is that you might avoid a wealth tax if you want to lie to the IRS about it.

The Wisp's picture

Lie I never Lie.. I speak the truth the same way our Government does..