Bank Of England Stress Testing Banks For Property Crash - Risk Of Bail-Ins
Today’s AM fix was USD 1,286.50, EUR 942.84 and GBP 778.47 per ounce.
Yesterday’s AM fix was USD 1,282.75, EUR 938.09 and GBP 780.83 per ounce.
Gold climbed $15.30 or 1.2% yesterday to $1,289.90/oz. Silver rose $0.15 or 0.75% to $20.20/oz.
Gold is marginally lower today in all currencies after eking out more gains yesterday after Yellen confirmed in her testimony that ultra loose monetary policies and zero percent interest rate policies will continue.
Citi Futures are looking for gold to increase by a further 8.5% by the end of March after gold closed above its 50 DMA every day for the last two weeks and closed above its 100 DMA for two straight days. RBC are less bullish but expect gold prices to increase another 10% and surpass $1,400/oz in 2014.
Gold touched resistance at $1,294/oz yesterday. A close above the $1,294/oz to $1,300/oz level should see gold quickly rally to test the next level of resistance at $1,360/oz. Support is now at $1,240/oz and $1,180/oz.
Yellen confirmed that the U.S. recovery is fragile and said more work is needed to restore the labor market. She signalled the Fed’s ultra loose monetary policies will continue and the Fed will continue printing $65 billion every month in order to buy U.S. government debt.
The dovish take from Yellen's testimony yesterday should support gold prices. Continuing QE makes gold attractive from a diversification perspective.
Market focus shifts from the U.S. to the UK today and the Bank of England’s quarterly inflation report.
The U.K. has already almost breached the unemployment level that was a target for considering tightening policy, and Governor Mark Carney is widely expected to update the market on interest rate guidance.
Possibly of more importance is the fact that the Bank of England is to test whether UK banks and building societies would go bust if house prices crash. A ‘stress test’ will examine whether banks will need bailing out, or bailing in as seems more likely now, if house prices materially correct again.
Preparations have been or are being put in place by the international monetary and financial authorities, including the Bank of England for bail-ins. The majority of the public are unaware of these developments, the risks and the ramifications.
The test is being drawn up by the Bank’s Financial Policy Committee, whose members include Governor Mark Carney.
A Nationwide Building Society survey just out showed house prices had risen by 8.8% in January over the same month last year. London house prices have all the symptoms of a classic bubble.
Many UK banks are already over extended and the real risk is that many banks would not be able to withstand house price falls. This heightens the risk of bail-ins.
Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages)
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