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Part 3 - Economists Warn Depositors May Be Burnt In Bail-Ins

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Today’s AM fix was USD 1,230.75, EUR 900.59 and GBP 752.38 per ounce.           
Yesterday’s AM fix was USD 1,234.00, EUR 907.69 and GBP 754.79 per ounce.

Download 11 Page Report On How Your Savings May Be Burnt In The Event of a Bail-In

Gold fell $13.52  or 1.1% yesterday, closing at $1,229.69 /oz. Silver slipped $0.20 or 1.1% closing at $19.45/oz. Platinum dropped $11.51, or 0.8%, to $1,356.99/oz and palladium rose $6.00 or 0.8%, to $730.50/oz.


Gold in U.S. Dollars, 5 Day - (Bloomberg)

Premiums in China and India remained robust overnight and way over western premiums. Bullion premiums in western markets have seen little movement this week. Gold bullion bars (1 oz) are trading at $1,283.78/oz or premiums of between 3.75% and 4.5%, and gold  gold  bars (1 kilo) are trading at $40,899/oz or premiums of between 3% and 3.5%.

Gold headed for a weekly drop of 1.9% as traders and more speculative investors await U.S. payrolls figures. Recent economic data boosted speculation the Federal Reserve may start trimming its $20 billion per week debt monetisation programme sooner than estimated. Although such speculation has been ongoing for a number of months now and has been proven incorrect.

Prices fell as low as $1,211.75 on Wednesday  the lowest since July 5, prior to a very sharp $40 rally  brought gold to over $1,250/oz again. Then determined selling capped prices at that level and a seller or sellers seemed determined not to see gold turn positive on the week. This would have led to technical and momentum buying.

As we noted yesterday, Chinese imports through Hong Kong alone are set to top 1,000 tonnes this year and this does not include other gold imports into China ex Hong Kong. Therefore, total Chinese gold demand could be as high as 2,000 tonnes. Total annual gold supply is expected to be around the 2,700 tonne mark. Therefore, China alone could swallow up nearly 75% of global gold mine supply this year.

 
Annual Chinese Gold Net Imports - 2001 to 2013 YTD

It is important to note that the huge Chinese demand in tonnage terms, 1,000 tonnes and possibly as high as 2,000 tonnes, is only worth roughly $39 billion and $78 billion in dollar terms. This is nearly what the Federal Reserve is printing every single month since late 2012.

Gold has tumbled 27% this year and is set for the first annual loss since 2000, as weak hands and hot money has exited the market on the recent price weakness. The majority of bullion buyers remain steadfast and demand remains robust, particularly in China and Asia. Even in western markets, while demand is lower than recent years, dealers, refineries and mints all report much more buyers than sellers which contradicts the notion that investors or gold buyers have “lost faith” in gold.

It is worth noting that, while gold is down 27% this year, it remains up 63% in the last 5 years - since the financial crisis began. Thus, again proving its worth as a long term store of value.

From a longer term perspective, it is also important to note that gold is now almost half of its record inflation adjusted high or real record high from 1980 at $2,400/oz (see chart). As we have said since 2003, we expect that number to be surpassed in the course of this secular bull market.

Economists Warn Depositors May Be Burnt In Bail-Ins
On Tuesday we launched our in depth research report ‘From Bail-Outs to Bail-Ins: Risks and Ramifications’ in order to shed light on and foster debate on what we believe is one of the most significant risks facing investors, savers, all depositors and most western economies - bail-ins.

In it we detail, how bail-ins are a real risk not just to vulnerable countries like Greece, but to any countries in the EU, the UK, the U.S., Australia, New Zealand, Japan and most of the G20 countries.

Below some leading economists and financial commentators in Ireland give their perspective regarding the risks of bail-ins. If you manage money in any way, your own or others, it will be prudent to heed their warnings.


Dr Constantin Gurdgiev

"The recent abatement of the euro area crisis and the reduction in overall global financial uncertainty have led to a decline in the demand for gold as a safe haven instrument and speculative asset.

This is the good news. In line with more normalised demand for gold and the precious metals, the risk hedging properties of these assets remain intact and require continued and structured approach to their inclusion when building a diversified, long-term focused investment portfolios.

In addition, changes in the regulatory and policy responses to the financial crises, established in response to the Cypriot banking crisis, warrant longer-term re-weighting of optimal gold and other precious metals' shares in defensive portfolios.

Given that the euro area is moving toward a pro-forma inclusion of the depositors bail-ins in the standard toolbox for dealing with the financially distressed national banking systems, the case for gradual cost-minimising increase in long term share of these instruments in individual investors portfolios is being made not only by the market forces, but also by regulatory changes.

Contrary to the short-term signals in the spot markets, gold and other precious metals role in delivering long-term risk management opportunities and tail risks hedging is becoming more important as the immediate volatility and short-term risks recede."

Dr Constantin Gurdgiev lectures in Finance in Trinity College, Dublin and in the Smurfit School of Business, UCD. He serves as the Chairman of Ireland Russia Business Association. In the past, he served as non-executive member on the Investment Committee of Goldcore.

 
Cormac Lucey

“In November 2012, it was reported by RTÉ’s David Murphy that CRH, the building materials maker and the biggest company on the benchmark Irish stock index,  “was mandated by its board not to leave cash in a bank in the euro zone during any weekend”.

The logic of CRH’s stance only became fully clear after weekend decisions taken by Eurozone finance ministers had a severe and adverse effect on the financial claims of depositors in Cypriot banks in March 2013.

Had ordinary retail and SME depositors in Cyprus’s banks known in February of CRH’s stance and of the logic behind it, does anyone seriously think that they would have left themselves so vulnerable in March?

The lesson from Cyprus is that individual and business depositors (small, medium and large) need to show at least as much care in making their deposit decisions as large corporations such as CRH.
 
Depositors should seriously consider two questions when putting money into a bank:
(i) is there is a serious possibility of the bank failing?
(ii) if the bank fails, is there then a serious possibility that the government would be unable to honour deposit guarantees in full?
 
If there is a significant possibility, even small, of capital loss, depositors should ask themselves the same question that corporate treasurers regularly ask themselves: am I being adequately compensated by the deposit rate for the risk I am now exposing my money to?”

Cormac Lucey is a chartered accountant, financial analyst & lecturer at the Irish Management Institute (IMI). He was special advisor to Michael McDowell, former Attorney General of Ireland, from 2003 to 2007.  He is a commentator on economics and politics.

 
Jim Power

“The attempted bail-in of all deposits in the Cypriot banking crisis and the eventual decision to bail-in deposits in excess of €100,000 has drawn a line in the sand and has created a very dangerous and damaging precedent. A banking system has to be based on trust and confidence; the Cypriot decision and subsequent statements from European policy makers suggest that trust and confidence have been seriously, and possibly irredeemably, damaged.

Any individual or any corporate treasurer would be taking an unacceptable risk in making a decision to leave deposits in excess of €100,000 in any single bank, unless one is convinced that the institution is 100% sound. The events of the past 5 years should have taught us that such a conviction would be dangerous.

For investors, bank diversification is essential, but more broadly, asset diversification has to be the priority for anybody with any wealth. We still live in very dangerous and uncertain times and investors should do whatever it takes to manage risk and ensure that all of their eggs are not in a single basket that may be badly holed.”

Jim Power is a graduate of University College Dublin with a BA in Economics & Politics, and a Master of Economic Science Degree.  He is Chief Economist at Friends First Group, a wholly owned subsidiary of Eureko, one of Europe’s largest insurance groups. He teaches Finance and Economics on the Local Government MBA at Dublin City University, and Business Economics on the Executive MBA at the Michael Smurfit Graduate School of Business, University College Dublin.

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)  

 


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Sat, 12/07/2013 - 00:53 | Link to Comment Haager
Haager's picture

Each week I can't wait for more of these nice articles that are somehow a leading indicator of gold-prices. The more it's said how risky fiat is and how cheap the price of gold actually is the more the price goes lower. But with $eurusd near 1.375 and gold supposed to be around $1210 at the beginning of the week almost every European with some cash at hand should use the chance they got!

Fri, 12/06/2013 - 20:52 | Link to Comment Iam_Silverman
Iam_Silverman's picture

"Dr Constantin Gurdgiev

"The recent abatement of the euro area crisis and the reduction in overall global financial uncertainty have led to a decline in the demand for gold as a safe haven instrument and speculative asset.

This is the good news. In line with more normalised demand for gold and the precious metals, the risk hedging properties of these assets remain intact and require continued and structured approach to their inclusion when building a diversified, long-term focused investment portfolios."

 

Those Rose colored glasses that this 'economist" looks through may have a bit too much tint.  When exactly did the Euro crisis completely subside?  Where is all of this reduction in overall global financial uncertainty?  In Japan, the U.S?  Certainly there is an abnormal amount of financial stability in Venezuela and Argentina right now, isn't there?

If there we really a more "normalised" demand for gold, then the price swings down would be much more amplified every time a months worth of contracts are dumped at the Hong Kong open.  The ComEx vaults would be much better stocked, and India wouldn't have to resort to offering snitch money for gold "freelance importers" (the Indian CB calls those erstwhile entrepreneurs smugglers).

Fri, 12/06/2013 - 21:56 | Link to Comment Zero-risk bias
Zero-risk bias's picture

I interpreted that he is more focused on the perception of risk. Risk on/off, how that is publicised as a meam, the sentiment that ensues, and how that effects demand. I don't think he's really saying the overall picture is any different, just that it seems since 2013, there has been signals that this will be 'managed' in one way or another.

IMO, your point is well taken, and his analysis is congruent.

 

 

Fri, 12/06/2013 - 17:24 | Link to Comment kchrisc
kchrisc's picture

The criminally irony of "bail-ins" is that they are basically admitting to the fraud and theft of taking the deposits of their depositors.

They stole their depositors'' deposits, counterfeited money/currency on top that loot and then when things didn't pan out for them they are now reneging on the implicit promise of returning the stolen deposits.

Kind of like a mugger that takes your money and then comes a knocking for more when the business he invested in with your money doesn't pan out. LOL

 

"Heads you pay them your money, tails they take your money."

 

"Is it time for the guillotines yet?!"

Fri, 12/06/2013 - 17:31 | Link to Comment kchrisc
kchrisc's picture

At least Bitcoin doesn't force one to "participate."

 

Guillotine maintenance tip #5: Blade lift ropes should be "rotated" quarterly, monthly if under heavy use, to prevent wear spots from forming. Wear spots weaken a rope and cause breakage and shortened usefulness.

Fri, 12/06/2013 - 12:39 | Link to Comment GreatUncle
GreatUncle's picture

When they conceived the ideology of bail-ins central banks should have gone and looked at what happened when the economic system in Japan imploded years ago.

1.) I bet everybody runs with a higher amount of cash in pocket.

2.) Apply a bail-in all excess cash is removed.

Leads to this bit ...

3.) An economy run with bail-ins will never hold enough liquidity and as fast as it is created it will be removed and that will suppress growth ... Ahem ... Japan ... what? Not enough growth?

The paper bubble takes off and flies to the moon at no point can a helicopter money drop occur in future because that money would be removed and hoarded not spent.

... The first truly global bank run is going to be awesome to watch, as fast as any one nation applies it chances are money will be removed elsewhere as security from this so interconnected system.

Fri, 12/06/2013 - 12:32 | Link to Comment novictim
novictim's picture

Bail-ins, wealth redistribution, taxes on the rich and increased subsidies to the middle class (middle income earners)...all predictable, all necessary, and all obvious to anyone who knows how the capitalist game works.

 

ZH, did you really think you could actually have an economy that goes on functioning when the consumer class is BROKE/Bankrupt?

Go home, people, and reacquaint yourselves with the simple yet profound game of monopoly. That game ALWAYS comes to an end if the rules are followed much as how the "Free Market" always comes crashing down if you don't have extreme interventions by Government.

Fri, 12/06/2013 - 12:49 | Link to Comment Itgoestoeleven
Itgoestoeleven's picture

Hello NV,

I hope the 'sarc' button was on when you wrote the above. What we see now is not capitalism. Capitalism cannot exist when the final argument is a gun. And BTW, Monopoly is not capitalism; too many rules.

Fri, 12/06/2013 - 12:47 | Link to Comment Marco
Marco's picture

The problem is that the rich will get all their money out of the banking system before bailins happen ... only pensioners and the middle class will get caught.

Free movement of goods and capital, WTO regulations and settlement of debt in currencies not controlled by government (ie. the Euro and the Dollar for countries other than the US) makes effective taxation of wealth pretty much impossible (other than on property, which only helps for the few countries where the rich like to live, like the UK).

I agree a relatively equal distribution of wealth is necessary for an economy which optimizes the median standards of living ... but the rich have instituted a status quo which makes it nearly impossible to attain.

Fri, 12/06/2013 - 18:20 | Link to Comment GCT
GCT's picture

Let me correct you Marco.  The rich and the smart will get thier money out.  You do not have to be a victim.  All you have to do is stop playing the game of debt and believing the rhetoric and pundits.  I got mine out and I am much happier.  I am not even close to being rich.

Sat, 12/07/2013 - 05:59 | Link to Comment Not Goldman Sachs
Not Goldman Sachs's picture

GCT, financial advise needed....how does one get their money out of a 401 k retirement or 453 b when still working and of age?

Fri, 12/06/2013 - 17:03 | Link to Comment Papasmurf
Papasmurf's picture

Marco"

I agree a relatively equal distribution of wealth is necessary for an economy which optimizes the median standards of living ..."

Relatively fair distribution of wealth is necessary for an economy to optimise standard of living.  That is not the same as a relatively equal distribution.  Wealth needs to be commensurate with one's contribution to society.  Since each person has different ambitions and different capabilities, their contribution will vary and their wealth should vary commensurately.  When the one percent can take more than their due through fraud, politcal capture and justice department capture, they have taken more than their contribution was worth.  This wrecks the allocation of capital.  When captial is mis-allocated this way, the economy falters and if fraud is not correct as is currently the case, the economy collapses.

Fri, 12/06/2013 - 12:57 | Link to Comment Itgoestoeleven
Itgoestoeleven's picture

See comment below

Same thing goes for you Marcoxist

Fri, 12/06/2013 - 12:46 | Link to Comment GreatUncle
GreatUncle's picture

Oh the memories, DO YOU REMEMBER PLAYING MONOPOLY?

Remember how the person who has won just wants to keep playing! Like forever?

The others though have had enough there is no point once one side has such a monopoly (appropriate name).

Well you stop, don't play no more and go do something else or you restart the game entirely.

There was another good game just after moopoly, called Colditz, where you and others had to escape from a WW2 POW camp and one person played the germans is that making a comeback?

Fri, 12/06/2013 - 12:09 | Link to Comment Billy Sol Estes
Billy Sol Estes's picture

Stop contributing to your IRA's and take the penalty now. Either way, you get taxed on it when you cash out at retirement or before. Best to take it and buy physical and bury that shit.

Fri, 12/06/2013 - 12:34 | Link to Comment novictim
novictim's picture

How many bars of gold will buy you a bowl of rice in 20 years?

Fri, 12/06/2013 - 13:36 | Link to Comment RafterManFMJ
RafterManFMJ's picture

A one gram bar will buy you 50 lbs of rice and a scooter to drive it home on...

Fri, 12/06/2013 - 10:52 | Link to Comment No Euros please...
No Euros please we're British's picture

No chance of a bank run at RBS, their computers have an algo that kicks in anytime withdrawals threaten their cash flow, and just shuts the system down for several days.

Fri, 12/06/2013 - 10:42 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Ya think?  Time for a real bank run motherfuckers.

Fri, 12/06/2013 - 11:15 | Link to Comment PR Guy
PR Guy's picture

Here's some Friday afternoon fun for you while you are waiting for that bank run - Death tells us about his hobby.

http://www.youtube.com/watch?v=VTD4zBKbX7Q

Fri, 12/06/2013 - 11:47 | Link to Comment Manthong
Manthong's picture

NFBD

As a graduate of the Mesdames Wang and Watanabe School of Economics, I would like to thank the Fed, the BIS, the ESF, JPM, GS et al for the many wonderful occasions to use the reverse gear in my truck.

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