Bank Balances And Gold

Tyler Durden's picture

Submitted by Alasdair Macleod via GoldMoney.com,

There has been a growing shift in favour of assets relative to bank deposits. This was initially encouraged by zero interest rates, but more recently there is little doubt that Cyprus’s bail-in has accelerated the trend. This explains the bull markets in bonds and equities, which conveniently underwrites the entire banking system. It is however too early to offer evidence of falling deposit balances held by non-banks and the general public because depositors as a whole have been remarkably complacent, but there is ample evidence that liquidity from monetary expansion is inflating financial assets faster than bank deposits.

This helps explain why, for example, Italian 10-year bonds are on a 4% yield. The reason, doubtless reaffirmed by the Cyprus bail-in, is that investors with cash balances think over-priced sovereign debt is less risky than adding to their euro deposits. However, the central banks are relaxed because weakness in deposits at any single bank is easily covered through the banking system, insulating individual banks from depositor-withdrawal systems. Presumably, banking counterparties are also complacent because they can be reasonably sure to be exempt from any bail-ins. They have the comfort of knowing the banking system is underwritten by all those complacent enough to leave money on deposit beyond the insured level.

However, some of depositors’ cash balances post-Cyprus will have gone into physical gold and silver, which explains why the bullion banks operating in the futures markets and the central banks behind them are so keen to dissuade us that gold and silver is a safe haven. I recently interviewed Ronnie Stoerferle, the Vienna-based analyst, who put his finger on it: since Cyprus, there has been a sharp rise in European demand for physical gold, with the pressure being felt by the bullion banks unable to deliver bullion.

At least one bank was recently reported to be only prepared to settle bullion liabilities in cash. Therefore the price knock-down in April was a logical response by the bullion banks, which had to defuse customer demand for physical delivery. But given that the driving factor was not speculation but a reluctance to add to deposits in the banking system, the jump in demand for bullion at lower prices was inevitable.

Where does this leave things? The crisis in bullion markets is worse than it was before. A good example of how little physical stock there is can be gained by tracking bullion deliveries on the Shanghai Gold Exchange. In the last few weeks they have dwindled to virtually nothing, having been a truncated 190 tonnes in April and 297 tonnes in March. Yet we know from reports that retail demand in China has taken off; so it is only a matter of time before prices are bid up on the Shanghai Gold Exchange enough to replace lost inventory.

It will be interesting to see how many more bullion banks are forced to admit the fiction behind their customer accounts in the coming weeks. For the moment the temporary solution amounts to rationing bullion supplies to the public.

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Yellowhoard's picture

Hmmm. This is a hard one.

I can put my money in a bank account at practically zero interest and be an unsecured creditor to the bank and potentially wiped out overnight?

Or, I can buy bullion and bet on future central bank and government incompetence?

I'm gonna have to scratch my head for a while on this one.

ZerOhead's picture

Don't forget that bet also covers central bank and government malfeasance...

DoChenRollingBearing's picture

With interest rates from the banks near 0%, there seems to be a better return vs. risk by just hiding CA$H FIAT$ at home.

Physical Au > CA$H FIAT$ > 0.01% money market account at the bank.

Sofa King Confused's picture

OT but, that chinese girl in the purple dress has a nice rack

Badabing's picture

History 101

HKMEX defaults and screws the contract holders with cash settlement.

At the price they dictate.

This is history, now, at this moment!

Herd Redirection Committee's picture

And if that, and the Cyprus bail-in, don't provide you with the blueprint of what is to come, then you aren't paying attention.

philipat's picture

But the Bank gave me this lovely Spiderman towell free??

Its_the_economy_stupid's picture

All I get is Crack Spackle T-shirt ads.

Pairadimes's picture

Brought to you by a modern miracle in structured undergarments and a high pain threshold.

DoChenRollingBearing's picture

Sofa King Confused

She just started showing up in my neighborhood as well...

walküre's picture

still hard at it with the SEC, I see ...

seek's picture

Probably the single most distracting ad I've seen on ZH.

jimmytorpedo's picture

All my ads are for buying au/ag.

I want chinese racks!

What do i have to do so ZH gives me titties?

I better stop buying pm's and look at more porn or for an Asian wife?

chubbyjjfong's picture

Closer inspection of purple dress asian girl photo reveals significant bra inserts. 

DoChenRollingBearing's picture

How close of an inspection, lol...   + 1

TheFourthStooge-ing's picture

.

OT but, that chinese girl in the purple dress has a nice rack

How does she rate on the Jissbon scale?

ZerOhead's picture

'Home Banking' is indeed another option with lower risks and similar returns...

Of course you would have to forego the excitement of seeing your cash forceably converted into fiat crematorium shares.

Then again the regulators may just finally decide to prosecute the corrupt banking systems "enablers" (DEPOSITORS) under existing aiding and abetting laws...

SafelyGraze's picture

I just wrote myself an IOU

put it in an envelope, inside a box full of empty envelopes

am selling shares of tranches of the box of envelopes

step forward

ebworthen's picture

Great idea.

Maybe we can all use taxpayer dollars to buy each other's IOU's, then bundle them and sell them to pension funds and municipalities at 30-1 leverage?  Ah, the miracles of "modern" finanacial engineering!

"Modern" in quotes because of South Seas and Black Tulips.

EBS's - Envelope Backed Securities!

ebworthen's picture

+1 for using malfeasance.

May I add their repeated demonstrations of skullduggery and legerdemain?

Consistent, reliable, and perpetual undermining of responsible citizens while ignoring the rule-of-law.

ZerOhead's picture

Please do.

And often...

Herd Redirection Committee's picture

If I ever have a conversation with a police office, I am going to ask him: "What, in your opinion, are the most serious crimes being committed in society today?"

Because it is amazing to me that police don't view white collar crime as being in their jurisdiction!

 

css1971's picture

To be fair, having 2 -> 10% of my wealth stolen in a year or having a drug addled Chav come at me with a machete have different levels of seriousness.

Cthonic's picture

Right, it's easier to plead self defense after shooting the chav

nope-1004's picture

Buying gold and silver and removing it from the banks removes their power over your account.  Yes, they may be able to tax PM's in the future, but I'd rather have it in my control than let them do as they wish with my cash account.

PM's are the anti-establishment vote.  If everyone removed savings and bought PM's, used cash for transactions instead of debit, the banks would be dead in a week.

The system is moving rapidly toward digital balances and transfers.  Doing so allows the gov't and banks to keep track of purchases, tax you accordingly, or confiscate (called a "bail-in") your account to protect you.  LMAO.  The recent introduction of coin sorting machines in banks shows the move to remove hard currency from the world and keep it digital and in their control.  Anyone used those coin machines?  Can you withdraw the paper cash equivalent, or does the balance automatically get put into your account electronically?

 

 

Uchtdorf's picture

I'm a penny sorter so I use the coin machines in my credit union regularly when I dump the zincolns. They will allow me to take the fiat without imposing a fee because I am a member of the CU. Or, I can just deposit the amount into my small account so I can buy more pennies and sort for more copper. Copper, it's the poor man's precious metal.

If you're interested see: www.realcent.org

Meat Hammer's picture

If everyone removed savings and bought PM's, used cash for transactions instead of debit, the banks would be dead in a nanosecond.

 

WarPony's picture

Laundering cartel funds is still a plus for their balance sheets.  Never underestimate the powers of the central bankster vatican mafia cartel.  MOAR HOPIUM!

Herd Redirection Committee's picture

People would also have to not pay their credit cards.

Meat Hammer's picture

Who gets your house if the bank who holds the note goes tits up?

Cthonic's picture

Well first an organization like the Office of the Comptroller of the Currency will place the bank into receivership.  The appointed receiver will hold the note.  Might end up assumed by another bank, or remain in the hands of the FDIC.

Billion Dollar Bonus's picture

Buying gold leaves you with an overpriced shiny lump. I would far rather own a piece of a fantastic American company paying dividends. 

TheFourthStooge-ing's picture

He could do both in one investment. Allow me to introduce to you The Next Big Thing®: the ABC Flying Unicorn Company, a Delaware corporation operating in Crabwell Corners, Maine.

ABC (American Bullion Crapping) Flying Unicorn specializes in the husbandry of Flying Unicorns which, depending on the variety, crap solid nuggets of gold or silver.

To get in on the ground floor of this amazing opportunity, send me all of your physical gold and/or silver, along with all of your available US dollars (cash only). I'll get back to you in a few days.

DoChenRollingBearing's picture

trillion, quadrillion, google, googleplex...

Howzabout: (9!)^(9!)^(9!)^(9!)

Its_the_economy_stupid's picture

BDB

Soon you will get your chance to buy those companies. Wait for DOW:GOLD, 1:1.

Panafrican Funktron Robot's picture

Are you recommending any particular company?  Or do you think they're all "fantastic"?  Are you talking common shares, preferred shares, or corporate bonds?  Just saying "gold sucks" and not offering any alternative investment ideas is just trolling, and that doesn't really add anything positive to anyone's life here.

Keynesian Mess's picture

Once you get the list, short the works.  BDB is committed to being the guy holding the bag and buying all the way down.

GVB's picture

Below looks OK, very OK. But prepare for the biggest clean up of all EU banks a la cyprus style. 

* Quote from ArmstrongEconomics --- Glass-Steagall Germany *

Germany is drawing a bright line between proprietary trading in banks and customer deposits. They are not merely separating the two, but they imposed criminal sentences for directors of banks and insurance companies if they fail to fulfill their supervisory duties in risk management or contravene an array of banking supervision.

Germany will at least prosecute the bankers, unlike the United States. Obama’s green-light policy that has protected the New York bankers is starting to filter around in Washington and the bankers should be worried that they may not be able to buy off the prosecutors again after 2015.75.

The tide is starting to turn largely because the NY bankers have sent the entire world into chaos for their irresponsibility trading with other people’s money. When the economy turns down again, this time the heads may roll.

Stuck on Zero's picture

You or I can buy some gold coins to safeguard our assets.  What about money managers with $10B to manage? How do they safeguard assets?  They can't buy bullion.  They'd never get delivery and would likely crash the COMEX and lose it all or lose loved ones to mercenary enforcers working for the banksters.

Panafrican Funktron Robot's picture

"What about money managers with $10B to manage? How do they safeguard assets?  They can't buy bullion."

Well, if they truly can't mimick the moves Soros et. al have been making lately regarding miners and GLD phys redemption, you could do worse than buying up productive land/assets and energy producers.  They call oil "black gold" for a reason.

Herd Redirection Committee's picture

Bonds on miners, direct equity investment in miners, goldbonds...  Buy a stake in coin dealers or an exchange...  Buy royalties from a miner...

But really, providing project financing to a junior. 

The difficult part is how many people (in finance) have the competence to evaluate these projects.

GVB's picture

Don't worry, they have their bullion "safe" in "allocated" accounts.

GVB's picture

Also, to dig further into EU banking reform, here's a quote from The Irish Times (8th of May 2013). Spooooooky!!!

 

Addressing a conference in Brussels yesterday, Jeroen Dijsselbloem said banks would undergo asset quality reviews before they come under the supervision of the European Central Bank next year.

“The outcome. . .we don’t know yet, but it might be worrying,” Mr Dijsselbloem said, stressing the need to have the instruments in place “to deal with the problems”. The European Central Bank is scheduled to take supervisory control of the region’s banks from the middle of next year. While the ECB will supervise the bloc’s larger and more troubled banks, it will have the power to intervene in smaller banks if needed, although they will remain under the supervision of national authorities. 

Blah Blah Blah...

The last EU-wide stress tests were undertaken by the European Banking Authority in 2010, but were criticised for giving a clean bill of health to banks that later ran into difficulty.

Concern that asset reviews could reveal further bank weakness is likely to inform next week’s discussion in Brussels about the bank resolution regime. Finance ministers are due to discuss the issue of bank resolution, particularly the question of how creditors, including depositors, are “bailed-in” in the event of future bank collapses, at Tuesday’s meeting of finance ministers, which will be chaired by Michael Noonan.

Mr Dijsselbloem stressed yesterday that deposits under €100,000 would remain protected under the new rules, but uninsured deposits above that threshold would be included in any bail-in under a proposal formulated by the Irish presidency of the EU Council ahead of next week’s meeting.

DosZap's picture

bullion banks operating in the futures markets and the central banks behind them are so keen to dissuade us that gold and silver is a safe haven.

 

Yes, and that is why they're ALL dumping the barbarous relic/sarc