Bail-Ins Approved By EU Yesterday - Coming In UK, U.S. And Globally

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Today’s AM fix was USD 1,299, EUR 938.58 & GBP 773.03 per ounce.               

Yesterday’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.

Gold dropped $23.80 or 1.79% yesterday, closing at $1,302.90/oz. Silver lost $0.37 or 1.85% yesterday to $19.62/oz.



Gold in U.S. Dollars - April 15 to April 16, 2014 - (Thomson Reuters)

Gold was pinned at $1,300 an ounce, well off Monday's high at $1,330.90. The sharp sudden price fall yesterday in early afternoon trade in London (see chart) was attributed to more peculiar computer-driven concentrated selling of huge tranches of gold futures contracts on the COMEX, which then saw heavy stop-loss orders placed by momentum traders.

Data from Nanex shows that gold futures contracts with a notional value of nearly $500 million dollars were sold in minutes. This, not surprisingly, hammered gold futures down over $12 and led to the futures exchange having to halt gold trading for 10 seconds. This sudden price fall resulted in gold falling  below its  200-day moving average (DMA) and to selling by momentum traders piling in and shorting gold.

Gold quickly recovered from the concentrated selling with buyers stepping up to take on the liquidators. Demand appears to be ticking up and holdings in the SPDR gold fund rose by 0.6 tons to reach 806.82 following a three-week downtrend in holdings. Assets rose by 1.8 tons on Monday to 806.22 tons, the first inflow the fund has seen since March 24th.

Gold’s losses were kept in check by fears of further escalation of tension in Ukraine. Our warning yesterday of conflict and a civil war in Ukraine was echoed by Putin and Medvedev overnight.

Gold in Euros - Jan, 2009 to April 16, 2014 - (Thomson Reuters)


Ukrainian forces began a military crackdown against what are being called pro-Russian separatists in the eastern regions of the country. The so-called ”anti-terrorist” operation is the new government’s response to people, some armed, taking control of administrative and police buildings in the East.

The local parliaments of the Donetsk and Lugansk regions elected the creation of independent, sovereign states, and called for referendums on ceding from Ukraine, much like the events in the Crimea.

Ukrainian troops retook state buildings from ethnic Russians in the eastern Donetsk region yesterday. White House spokesman Jay Carney said while the U.S. is considering military assistance to Ukraine, lethal aid isn’t an option at this time.


Thursday will see 4 way talks in Geneva, hosting senior representatives from Ukraine, Russia, the EU and U.S. It is hard to see how progress will be made given that economic sanctions remain and look set to intensify.

Yesterday, these not inconsequential geopolitical risks and robust physical demand internationally could not overcome the speculative selling and possible high frequency trading (HFT) manipulation on the COMEX.

Bail-Ins Approved By EU Parliament Yesterday - Deposits Over €100,000 Vulnerable
Yesterday the EU Parliament adopted three key texts outlining common rules on how to restructure and resolve failing banks.

The laws make up what has become more commonly known as Europe's banking union and include the creation of a Single Resolution Mechanism and a €55 billion Single Resolution Fund for banks in difficulty. The law was approved by the parliament with 570 votes in favour and 88 against.


Importantly and little commented on is the fact that they also include the Bank Restructuring and Resolution Directive, which seeks to shift the burden of bank failure from taxpayers to creditors - both bond holders and depositors.

Another key piece of legislation approved yesterday was the Directive on Deposit Guarantee Schemes, which says that bank deposits up to €100,000 will remain protected from any loss that a bank may incur. This means that deposits over €100,000 are now vulnerable to bail-ins and deposit confiscation.


Now shareholders and creditors including depositors over the €100,000 level will be the first to face losses from a bank failure and there remains a real risk of that in the EU.


goldcore_bloomberg_chart2_10-12-13.png (606×384)

European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages - see here.


“Bail in will be the main way to solve the problems," said Swedish MEP Gunnar Hökmark. “Bank resolution will be funded by creditors via bail ins and will also by resolution funds which will be funded by banks for banks."

“Bail-in” enshrined in the two laws, means that the bank’s owners - the shareholders, and creditors -  the bondholders and depositors, will be first in line to absorb losses banks will incur, before outside sources of finance may be called upon.

The two EU laws on bank resolution will also require banks to finance reserve funds to cover further losses, but only after bail-ins have been used.

Bail-In Regimes are coming in the EU, the UK, the U.S. and internationally  …
Bail-In Short Guide: Protecting your Savings In The Coming Bail-In Era
Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications