Gold New Record Nominal Highs ($1,625.70) As CDS Traders Start Positioning For U.S. Downgrade(s)

Tyler Durden's picture

From Gold Core

Gold New Record Nominal Highs ($1,625.70) as CDS Traders Start Positioning for U.S. Downgrades

Gold is trading at USD 1,620.40, EUR 1,120.50 and GBP 989.08 and CHF 1,298.50 per ounce. Both the dollar and the euro are under pressure again today and gold has reached another new record nominal high of $1,625.70/oz in early European trading.

Cross Currency Rates

European indices are marginally lower after a mixed performance in Asia (Asian indices: Nikkei -0.48%, Sensex -0.52%, Shanghai +0.51%, Hang Seng +0.18, STI -0.13%).

The Italian MIB is down 1.5% with UniCredit down over 4% and Intesa Sanpaolo down more than 5%.

Spanish and particularly Italian bonds are under pressure today with the Spanish 10 year back above 6% and the Italian 10 year rising to 5.79%.

United States CDS Historical Rates (CMAN)

Five-year credit default swaps (CDS) on Italian government debt rose 22 basis points on the day to 295 bps, according to data monitor Markit. This means it costs 295,000 euros to protect 10 million euros of exposure to Italian bonds. Spanish and the rest of the peripheral euro zone CDS also rose.

Five-year credit default swaps (CDS) on U.S. government debt have risen 3 basis points to 63 bps, according to data monitor Markit. This means it costs $63,000 to protect 10 million euros of exposure to U.S. bonds.

The cost of insuring U.S. government debt against default has edged up again today due to the dawning realization that the world's largest economy will not maintain its AAA credit rating. Indeed, as the chart above shows the cost to insure U.S. debt over all durations is rising.

Notional Change in Net Outstanding CDS (Zero Hedge)

Economists in the U.S. believe that the U.S. will lose its vanguard AAA credit rating according to a recent poll conducted by Reuters. A survey of 53 economists showed 30 believed that one of the three leading credit rating agencies will downgrade US debt. The economists do not believe that the U.S. will default.

A downgrading of the U.S. is inevitable given its very poor fiscal position – the question is by how much the U.S. is downgraded and AA looks possible in the coming months.

The widening in U.S. CDS has so far been modest but the bond vigilantes may be awakening from their slumber as net notional CDS on US debt has risen above that of Greece and Italy.

Financial players have positioned themselves by buying some $4.8 billion of credit default swaps on U.S. government debt, according to figures from the Depository Trust and Clearing Corporation.

They either believe that the U.S. government will default on its debt or are taking out insurance against of this happening.

Investors internationally -- including everyone from individual consumers in their pension funds, to hedge funds, to the Chinese government -- currently hold $9.3 trillion (with a T!) in Treasury bonds, and they're counting on Uncle Sam paying up when those contracts mature.

The U.S. government will have a three-business-day grace period to make good on any default before credit default swaps are triggered, the International Swaps and Derivatives Association said Tuesday.

ISDA General Counsel David Green, in a Bloomberg TV interview Tuesday, said that ratings agency actions on U.S. debt and CDS triggers are completely unrelated. "If the ratings agencies come and say there's a default or there's downgrade...that doesn't itself trigger CDS. We would look at whether a payment is due and whether it was made or not.”

There are concerns that a U.S. debt default could send the derivatives market into turmoil because a missed Treasury payment may have been deemed too unlikely to be fully planned for in the contracts.

We are all exposed to Uncle Sam’s profligate ways and this makes a diversification into gold by investors internationally (individual, pension funds, institutions) more important than ever.

A tiny minority realize this and are diversifying into gold, whereas the majority remain unaware of the risks and have no allocation in their portfolios to gold whatsoever.

This is changing but gold remains a very under owned asset and the preserve of the more risk aware and risk averse.

For the latest news, commentary, infographics and videos on gold and financial markets follow us on


(Reuters) -- Gold hits record as U.S. debt uncertainty grows

(Bloomberg) -- Treasuries Fall, Gold Gains on U.S. Debt Rift

(Bloomberg) -- Gold Surges Toward Record as 'Go-to Asset'

(The Telegraph) -- Weak UK growth puts AAA rating at risk, experts warn


(The Telegraph) -- The Kabuki Theatre of America's Debt Ceiling

(King World News) -- Embry - Massive Shortage of Available Physical Gold & Silver, Asians to Create Short Squeeze

(GoldSeek) -- Dollar Default to Change Gold/Silver Markets

(Zero Hedge) -- Morgan Stanley's Q3 Outlook On Gold, Silver, Rare Earths And Every Other Metal Under The Sun

(WTFnoway) -- The United States Debt - A Visual Representation of 14.3 Trillion Dollars

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HelluvaEngineer's picture

Let's see.  You know RoboTrader will be going long AMZN at the open.

SheepDog-One's picture

Well that depends, if AMZN is up Robo will hype it endlessly, if its down he wont mention it just like NFLX. He should have just bought gold instead of bashing it since $1,000. Robo, Gentleman Jim sends his condolences.

Ranger4564's picture

There is no doubt the debt crisis will get worse, whether it's through lack of resolution or by downgrade.  The US cannot and will not be left standing while the financiers take down the rest of the world.  In fact, expect this to be the beginning of a rapid decline.  How people refuse to see this for what it is, is beyond me.  This is tied to the takedown of Germany by burdening her with the debts of the rest of Europe... the financiers sent our funds to Europe to burden us with the debts of Europe too.  That wasn't a lapse in judgement either.  It's sheer arrogance to believe we're all smarter than these assholes... in fact, we're acting very stupid when we believe their shallow lies.  Hello... smell the coffee even if you don't drink it.

Dr. Engali's picture

It's all designed to bring us in line with the rest of the world as far as labor prices go. Finance and build a factory in China all the while bleeding the American economy dry with tax credits and bail outs. Throw the burden of losses on the tax payer.

The American people just shrug and do nothing. It's simply amazing to watch.

Ranger4564's picture

"The American people just shrug and do nothing. It's simply amazing to watch."


It truly is. So many people just want to pretend so badly that things will not get worse, that things are improving, that no one is this mean, that there is no one with that much power and control.  It's really a psychological schism... do you admit you've been a fool all your life because you have to acknowledge you were played?  or do you admit that you are a powerless twit in light of the immense control the financiers wield? 

To a lot of people, this is unthinkable betrayal. They bought into the system, the beliefs, the propaganda, hoping they'd receive the scraps as rewards, only to find out they're on the menu.  To a lot of people, this is so evil, they can't allow it into their reality. So they blisfully ignore facts and keep pretending they're going to be served next... not recognizing they're going to be served next.  Good luck with that.

Dr. Engali's picture

I'll be the first to admit that Ip until 2007 and 2008 I thought we had free markets. I was awakened nto reality when I saw everything that happened. I think I spent those two years in complete shock as I watched what was going on. Seeing the country looted right in front of our eyes for the whe country to see. But what amazes me even more is how easily the country was lulled back to sleep as they continue the looting.

MassDecep's picture

"There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution.” - Aldous Huxley (died 1963) English author

Strike Back's picture

They're kicking it up a notch nowadays.  Before, the soft-core drugs like Prozac and Zantacs kept people chilled out.  For the disaffected youth today, there's the new opiates.  My old home town is now littered with smacked out zombies, painkillers and heroin is the new drug of choice.  Just 10 years ago when I was growing up, teens were getting high on pot and acid, now they are shooting up.  The government, their corporate buddies in big pharma, and the drug lords who skim off the bottom are harvesting the poppy fields in Afghanistan for opium and dispersing it throughout the US for revenue and crowd control.  "Hopium" has an entirely new meaning.

MassDecep's picture

Not only apparent illicit drugs, but look at what your drinking in the municipal water supplies. Check out what you are eating as your daily dietary "normal" intake. My wife and I have stopped the consumption of milk unless we travel to Pennsylvania and buy raw occasionally. The reason we stopped was it tasted like a chemical cocktail one day, and I checked into what was in the milk supply. Sure, some things are unavoidable, but a lot of items are apparent. As I guzzle my diet coke....[sarc]


gmrpeabody's picture

"There will be, in the next generation or so, a pharmacological method of making people love their servitude,"

Next generation? JEEZO... take a look around you now! IT'S DONE!

toady's picture

The quote is from someone who died in the 60's, so the timeline is correct, if not a little late.

And my pick for the drug that is described is television.

gall batter's picture

this has occurred for years.  one example: the Boy Scout law that includes the words "obedient" and "reverent".  taught at an early age.  

SheepDog-One's picture

Right Ranger, people are under delusion if they think the financiers take down the rest of the world but U.S. goes somehow unscathed. The plan is to 3rd world everybody so they can be a small group running the world slave state under 1 government with 1 currency.

toady's picture

I must admit, that is my favorite delusion.

US financiers are the ones running the top scam (dirivatives)

US military is still the top dog

US citizens are the most pacified (a little expensive though)

So, the whole thing blows up, the US financiers make more money than will EVER EXIST via thier unregulated bets, then they use the military to collect. Meanwhile the sheep are given bread (food stamps & welfare) and circuses ('collection' wars and TV)

Ranger4564's picture

Not quite Toady.  The financiers are international and have no allegiance or borders.  They are also not the people you see visible as wealthy. They own the people you see as wealthy.  In the US, the military was destroyed, and private contractors (mercenaries) were created, just so when TSHTF, no one is relying on a military that has allegiance.  The top dog is the military industrial complex / mercenaries, in terms of physical force.  In financial terms, it appears to be old Dutch / British money.

Debtless's picture

I suppose after all is said and done - we will then find out the financial institutions will be profiting from the downgrade of the US. Again, we will all be shocked. Meh.

nubnub's picture

I thought the credit agency ratings were just suggestions and they didn't really mean anything.   When did that change?

westboundnup's picture

The triggering of CDS is like a nuclear power plant klaxon going off.  It's a nice warning, but what are you supposed to do at that point?

Sgt.Sausage's picture

Yes -- but you have to have bought well before the klaxons are going off.

Got Gold?

RunningMan's picture

The news cycle over the past three years has been bizarre. It's as if the information is being used like sleight of hand to keep people focused on anything other than the real issues, like why our elected government handled this so poorly. Look at Europe in crisis! No wait, look at the US! I've seen it asked 'where is the outrage and protest?', but I sense that this constant cycle shifting attention makes people withdraw and simply be thankful it isn't WORSE.

I still don't understand quite how letting this get so close to the brink helps anyone. The conspiracy theorist in me wondered what would happen if all our politicians found a way to short the US -- talk about moral hazard...

Ranger4564's picture

In a feudal world, all production creates surplus value.  In a world where you are indentured / indebted, you have no freedom. It benefits the people who have the money and power.  You think Africans have freedom and power now?

AR's picture

TYLER  /  We just saw this blurb from an article this morning.  It now looks like your friends in Washington are stealing your material.  FUNNY... Be well our friend.


House Majority Whip Kevin McCarthy (R-Calif.) would not answer when asked whether he now has the votes to pass the Boehner plan.  Instead McCarthy shot back:  “What kind of question is that?” he said, before turning to a favorite retort: “The first rule of Fight Club is you don’t talk about Fight Club.”

Esso's picture

Good Lord. Sheeple Chow sound bites.

Super. Welcome to Retard-O-Merikka.

chump666's picture

i am dumping stocks and buying puts on indexes.  this is bad, got bad vibes...US CDS blowing out.  I am thinking major inflection moment.  bids only on gold, some high yielders, silver, oil.  indust commods are toast too.  if USD and the EUR sell together China is looking at massive unrealized losses.

Quintus's picture

They won't remain unrealised for long.  

IQ 145's picture

Short the DJIA from 12,700; moving the stop down to 12,850. Long Dec. Si. from 33.75; zero loss stop. APPL really looks like a great short.

ZeroPower's picture

Goldcore wrong again, it costs EUR63,000 for protecting 10MM notional, not $

No Bid's picture

Agreed.  Gold deserves a better spokesperson than Goldcore.  It's basically spam.

bullionbaron's picture

Gold acting as a hedge against uncertainty

$1650 seems likely in the short term

Smiddywesson's picture

Gold acting as a hedge against uncertainty

Yes. that has been the big development since the May slaughter of gold and esp silver, they can still attack the price, but they can't keep them down and people are running into gold at the first sign of danger.  This changes everything and signals we are nearing the end of this charade.  I'm not calling parabolic prices soon, but that long slow march in gold prices just picked up the pace into a trot.  


It looks like the $1600 ship has sailed.  Hellow $1700.  

GetZeeGold's picture


Actually....they only slaughtered went untouched.

Silver is clawing back however.


voshnishki's picture

Time to sell Ebay? #oppaypal.

youngman's picture

They were talking this am on Bloomberg on why people were "flocking" to US one seemed to know why...last best hope...habit...but one guy said they could not all buy gold as it would "flood" the bet they will..right now they are in denial...even an agreement..we will still be  adding 2 trillion a year to our debt.....expences being cut...NEVER...the congresspeople don´t have the the bond viganties will do it for them....soon they will turn on the screws......soon...downgrades..higher interest...the CBO coming out with a forcast that scares the hell out of everyone..then the flood will come...and then sit back and watch Chaos.....

Flore's picture

those CDS will pay out dollars ? How laughable

ZeroPower's picture

No, they wont. The authors have likely zero insight (or in this case, simple research capabilities will do) into the credit markets and dont realize USA CDS is priced in EUR --> payable in EUR.

Flore's picture

those CDS will pay out dollars ? How laughable

Smiddywesson's picture

why people were "flocking" to US one seemed to know why...last best hope...habit...


Ignorance:  Most people don't care about money and look for confirmation bias from CNBC so they can sleep well at night and ignore the issues.

Fear.  Some of the sheeple will flock to treasuries out of fear, just like diners in a restaurant fire stack up at the front door when they could have walked out the back. 

Anchoring.  Some will refuse to accept that gold is the trade to make because their education and experience have trained them to view gold as a lousy asset, and they can't bring themselves to change.

Hope:  Some will avoid the gold trade because they think they missed the boat and will sit paralyzed in Treasuries, missing the next thousand dollar move because they missed the last thousand dollar move.

Denial:  Most people view themselves as the center of the universe.  They don't read history, and can't imagine themselves starving and dying.  The majority of the people around us go through life with a subconscious "It can't happen to me" mentality, or at least a "It won't happen in my lifetime" mentality.   I don't have to tell the people here, yes it can.


SheepDog-One's picture

I dont buy into the premise that 'people were flocking to treasuries' as we dont know who buys them at all, who directly bids to haul the auctions over the line by a nose...far as Im concerned its just Bernank with govt pension money.

SheepDog-One's picture

Max Keiser in his speech from Greece a few months ago was right, after Greece gets hollowed out, next is USA. Prepare for the big subtraction- austerity or maybe call it bankrupting. And really what will americans do when its all cut 40% or more, write emails and place phone calls?

Smiddywesson's picture

Flock to treasuries?


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