Risk Of Bank Runs And Forcible FX Conversion of Savings Deepens

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Risk Of Bank Runs And Forcible FX Conversion Of Savings Deepens

Gold’s London AM fix this morning was USD 1,573.75, EUR 1,254.48, and GBP 1,003.67 per ounce. Yesterday's AM fix was USD 1,579.00, EUR 1,255.67, and GBP 1,006.63 per ounce.

Silver is trading at $28.36/oz, €22.71/oz and £18.16/oz. Platinum is trading at $1,440.75/oz, palladium at $603.60/oz and rhodium at $1,275/oz.

The New York Exchange was closed yesterday because of a national holiday. Gold has been trading erratically in Asia rising and falling and keeping within a range of just under $10 from $1,570/oz-$1579/oz.  Gold spiked higher soon after the open in Asia but determined selling at the $1,580/oz level has capped prices.


Cross Currency Table – (Bloomberg)

Spain’s debt issues are igniting worries about the eurozone financial stability again which has sent the euro to a 2 year low against the US dollar and is seeing euro gold consolidate over €1,200/oz at €1,257/oz.

Spain’s 10 year interest rates hit 6.53% today as the Spanish economy appears to be collapsing.

Spanish retail sales saw a massive fall in April, dropping 9.8% after March's downwardly revised 3.8% decline. This marked the 22nd straight month of falling retail sales.

Gold is consolidating over $1,500, €1,200 and £1,000 per ounce against the backdrop of spiralling Spanish debt costs and the growing chance markets are attaching to Greece exiting the single currency bloc. 

A further sign of China’s importance in the global financial system and in the gold market is seen in Chinese bank, Industrial and Commercial Bank of China Ltd (ICBC), seeking membership of overseas exchanges and endeavouring to become a major global bullion market maker. Shen Shisheng, vice-general manager of financial markets at ICBC told Reuters on the sidelines of a conference in Shanghai that this is exactly their intention.

Today, US consumer confidence data for May is published at 1400 GMT. 

The risk of stealth bank runs in periphery euro nations turning into full scale bank runs are deepening and this is likely supporting gold.

European policy makers have failed to build a shield robust enough to prevent a bank run in one country sending others in the bloc deeper into crisis. The risk of a Greek exit is leading policymakers to attempt to create such a shield or buffer according to Reuters.


XAU/EUR Currency 1 Year Chart – (Bloomberg)

A push by the ECB for the euro zone to stand behind banks suffering from bank runs is slowly gaining traction but the bloc has yet to build backstops to prevent, or cope with, a sudden collapse of confidence in banks and mass deposit withdrawals.

Last week, European leaders discussed pan European means of supporting banks, measures the ECB hopes will include a bank resolution fund to deal with the fallout from the wind up or restructuring of a failing bank.

But a wave of withdrawals by depositors - either for fear that their government is too weak to stand behind its banks or that their country will exit the euro and forcibly convert their savings into a vastly devalued national currency - would represent a crisis of completely new proportions.

Greece’s exit and reversion to their national currency, the drachma, could precipitate electronic bank runs in other periphery nations. The risk is that even savers who may trust their bank as being safe, come to the conclusion that there is a risk that their euro deposits may, in the event of a sovereign crisis, be forcibly converted to drachmas, pesetas, liras, punts and escudos. 

OTHER NEWS

(Bloomberg) -- ETF Securities Gold ETPs Had Biggest Inflows Since December 

ETF Securities Ltd.’s long gold exchange-traded products had $240 million of inflows last week, the most since December, the company said in a report e-mailed today.

(Sydney Morning Herald) – Platinum: So Rare Total World Production To Date Would Fit Inside An Average Size Living Room
Mention precious metals and people's minds go immediately to gold. But platinum is even more valuable than the yellow metal and its value is driven by both decorative an industrial usage. Platinum is so rare total world production to date would fit inside an average size living room.

Tens of tonnes of ore must be mined and put through a five-month refining process to make one ounce of the metal. South Africa accounts for 80 per cent of world production followed by Russia and North America.

It is chemically inert, so it never loses its rich white lustre. As a result, it is highly sought after by the jewellery trade which accounts for 51 per cent of annual production. The remainder goes into various industrial uses.      Investors can get exposure to platinum on the US Nymex futures market or on the Australian Securities Exchange through an exchange-traded fund coded ETPMPT.


Spanish 10 Year Government Bond – 1 Year

Platinum trade was fairly subdued for the two decades leading up to 2003 with the precious metal locked in a tight trading range of $US268.60 and $US573.60 per troy ounce.      Mark Umansky, a certified financial technician and councillor with the Australian Technical Analysts Association, observes that the platinum market first attempted to break out of this long-term trading range in September 2000 at point 1 on the chart. However, the rally failed and the price fell back into its old range, finding support at the 50 per cent level, or mid point (point 2) of that range, a recognised support level in technical analysis.

Then late in 2002, international buyers went confidently into the market and pushed it through the old ceiling at point 3 on the chart.

Technical analysis theory says when prices convincingly break out from long-term trading range, the first target they should reach is a doubling of the magnitude of the old trading range, known as the 100 per cent line, point 4 on this chart.

When platinum achieved this early in 2004, it encountered some resistance then the climb continued to point 5, 200 per cent of the old trading range.

There again, resistance saw a brief fall but the bulls were well and truly in the market pushing platinum to record highs of $US2234.90 an ounce at point 6, or almost 500 per cent, in June 2008.

However, the sellers then entered the market pushing the price down over 66 per cent in six straight months of decline. When the price reached point A, close to the initial breakout signal at point 4, it stabilised at about $US752.10 and began to rise, this time a little more gradually.

The market went into a consolidation phase at the beginning of the ring on the chart and moved slowly to a distribution phase when informed investors started to sell, crystallising their trading profits just above the rising trend line at point B.

Now the market is poised delicately. Should the market fall through point B, the next support will be at the trend line. If that is broken a further support would be at point A. Conversely, Umansky says, strong support at point B could see platinum test its previous highs.

(Hong Kong Review) -- Gold price may rise further even without QE3, analysts say 
The price of gold is poised to rise further on limited supply and ample liquidity even without a third round of quantitative easing in the United States.

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NEWS
Gold marks time; Spain crisis weighs on euro - Reuters

Gold Poised for Worst Run Since 1999 – Business Week

Argentina: More controls for buying US dollars – Associated Press

China's ICBC has big dreams for bullion business - Reuters

COMMENTARY
Bank of England prepares plans for euro collapse – The Telegraph

For the Eurozone, the Worst is yet to Come – The Telegraph

UK's Biggest Refineries Prepares For Shutdown, Drivers Concerned About Gas Price Spike – Zero Hedge

Warning: America’s new Age of Austerity starts now - MarketWatch

Vietnamese Hoarding Around 1,000+ Tonnes of Gold as Government Aims to Increase Controls - Mineweb