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Here Is The FT’s Gold Price Manipulation Article That Was Removed | Zero Hedge

Here Is The FT’s Gold Price Manipulation Article That Was Removed | Zero Hedge.

Two days ago the FT released a clear, informative and fact-based article, titled simply enough “Gold price rigging fears put investors on alert” in which author Madison Marriage, citing a report by the Fideres consultancy, revealed that global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013.

To those who hve been following the price action of gold in the past four years, gold manipulation is not only not surprising, but accepted and widely appreciated (because like the Chinese those who buy gold would rather do so at artificially low rather than artificially high fiat prices) and at this point, after every other product has been exposed to be blatantly and maliciously manipulated by the banking estate, it is taken for granted that the central banks’ primary fiat alternative, and biggest threat to the monetary status quo, has not avoided a comparable fate.

What is surprising is that where the FT article once was, readers can now find only this:

 

 

And since we can only assume the article has been lost to FT readers due to some server glitch, and not due to post-editorial consorship or certainly an angry phone call from the Bank of England or some comparable institution, we are happy to recreate it in its entirety. Just in case someone is curious why gold price rigging fears should put investors on alert.

Gold price rigging fears put investors on alert

By Madison Marriage

Global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.

The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price, which is set twice a day by Deutsche Bank, HSBC, Barclays, Bank of Nova Scotia and Société Générale in a process known as the “London gold fixing”.

Fideres’ research found the gold price frequently climbs (or falls) once a twice-daily conference call between the five banks begins, peaks (or troughs) almost exactly as the call ends and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behaviour”.

“[This] is indicative of panel banks pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders,” Fideres concluded.

“The behaviour of the gold price is very suspicious in 50 per cent of cases. This is not something you would expect to see if you take into account normal market factors,“ said Alberto Thomas, a partner at Fideres.

Alasdair Macleod, head of research at GoldMoney, a dealer in physical gold, added: “When the banks fix the price, the advantage they have is that they know what orders they have in the pocket. There is a possibility that they are gaming the system.”

Pension funds, hedge funds, commodity trading advisers and futures traders are most likely to have suffered losses as a result, according to Mr Thomas, who said that many of these groups were “definitely ready” to file lawsuits.

Daniel Brockett, a partner at law firm Quinn Emanuel, also said he had spoken to several investors concerned about potential losses.

“It is fair to say that economic work suggests there are certain days when [the five banks] are not only tipping their clients off, but also colluding with one another,” he said.

Matt Johnson, head of distribution at ETF Securities, one of the largest providers of exchange traded products, said that if gold price collusion is proven, “investors in products with an expiry price based around the fixing could have been badly impacted”.

Gregory Asciolla, a partner at Labaton Sucharow, a US law firm, added: “There are certainly good reasons for investors to be concerned. They are paying close attention to this and if the investigations go somewhere, it would not surprise me if there were lawsuits filed around the world.”

All five banks declined to comment on the findings, which come amid growing regulatory scrutiny of gold and precious metal benchmarks.

BaFin, the German regulator, has launched an investigation into gold-price manipulation and demanded documents from Deutsche Bank. The bank last month decided to end its role in gold and silver pricing. The UK’s Financial Conduct Authority is also examining how the price of gold and other precious metals is set as part of a wider probe into benchmark manipulation following findings of wrongdoing with respect to Libor and similar allegations with respect to the foreign exchange market.

The US Commodity Futures Trading Commission has reportedly held private meetings to discuss gold manipulation, but declined to confirm or deny that an investigation was ongoing.

h/t Noel

TD Bank: Housing Slowdown Could Send Prices Down 25%

TD Bank: Housing Slowdown Could Send Prices Down 25%.

house prices canada

Canadian housing is overvalued by some 10 per cent, but a spike in interest rates or an “economic shock” could send prices spiralling down as much as 25 per cent, TD Bank says in a new report.
Canadian housing is overvalued by some 10 per cent, but a spike in interest rates or an “economic shock” could send prices spiralling down as much as 25 per cent, TD Bank says in a new report.

Yet “much of this imbalance appears to reflect frothier conditions in the larger urban centers of Toronto and Vancouver,” the report says.

TD economist Diana Petramala noted in the report that, when looking at house prices compared to rent or income, Canadian housing is massively overvalued — by 60 per cent compared to rental rates, and by 30 per cent compared to people’s incomes.

Those numbers agree more or less with estimates from The Economist, the OECD and Deutsche Bank, which last fall declared Canada’s housing to be the most overvalued among two dozen countries it surveyed.

But TD says those numbers are missing the point, because what matters is not house prices compared to rent or even income, but rather people’s ability to pay.

Thanks to record low interest rates, people are able to make much larger mortgage payments than those stats would suggest. So how much housing is actually overvalued depends on where interest rates are headed.

If interest rates go back to their historical norms, housing is overvalued by about 25 per cent, TD Bank estimates. But if they stay where they are, housing is actually undervalued — by about six per cent.

But interest rates are neither likely to go back to their historical norms (there’s been a downward, long-term trend for the past three decades), nor are they likely to stay as low as they are.

TD expects interest rates to rise nine-tenths of a percentage point by the end of 2015. If that happens, housing is overvalued by 10 per cent, and this is TD’s likeliest scenario, suggesting a correction, and not a crash, is in the cards. But even a relatively small correction in prices could send the market tumbling if it’s accompanied by weakness in the economy.

“In this case, housing activity can undershoot fundamentals. For example, if prices are 10 per cent overvalued, they could still potentially fall by 25 per cent if triggered by a spike in interest rates or a negative economic shock,” the report says.

Strengthening TD’s argument is a new report from the IMF, released Monday, whichalso estimates house prices in Canada to be overvalued by about 10 per cent.

Yet the long-expected correction is slow in coming. Even though home sales have stagnated in recent months, prices were still solidly up (by nearly 10 per cent) in the final months of 2013, and Canadians’ household debt continued to reach new record highs.

That debt burden is worrying TD Bank’s CEO, Ed Clark, who has been warning in recent public speeches that overextended consumers are making Canada’s economy “fragile” and ‘accident-prone.”

We’ve learned around the world that when you make the consumer indebted like that, their ability to withstand shocks is dramatically less,” Clark said.

He also worries that persistently high house prices could harm Canadians. Canadians will either end up spending a larger part of their income on housing, reducing their quality of life, or they will push wages higher, making Canadian labour less competitive in the global market, Clark argues.

Greece Is Back: Germany, France, Creditors Hold Secret Meeting Due To Greek Bailout “Mounting Concerns” | Zero Hedge

Greece Is Back: Germany, France, Creditors Hold Secret Meeting Due To Greek Bailout “Mounting Concerns” | Zero Hedge.

There was a time – roughly between May 2010 and the spring fall of 2011 – when all the world had to worry about was Greece. Then the realization finally dawned that since a Grexit from the Eurozone would kill the EUR and the European integration dream with so much “political capital” invested, crush Deutsche Bank, and bring back the much dreaded (by German exporters) Deutsche Mark, it became clear that there is no fear that Greece, which is now a decrepit shell of a country with a collapsed economy and society in shambles, has now become a slave state to European bureaucrats, business and banks (in Nigel Farage’s words), will never be formally kicked out of Europe and only an internal coup would allow it to finally break free from the clutches of unelected European tyrants. And then the world moved on to more important things: like Japan, China Emerging Markets and how they are all enjoying the Fed’s taper. Sadly, we have to reportthat Greece is once again baaaaack.

According to the WSJ, “top officials peeled away from colleagues after a euro-zone finance ministers meeting in Brussels Monday evening for a secret meeting to discuss mounting concerns over Greece’s bailout.

WSJ adds:

High-level officials from the International Monetary Fund, the European Commission, the European Central Bank, senior euro-zone officials and the German and French finance ministers were present, according to people with direct knowledge of the situation. They spoke on condition of anonymity because they aren’t authorized to talk to the press.

 

They were trying to figure out how to tackle two issues threatening to unsettle the fragile economic recovery in Greece and the broader euro zone.

 

They discussed how to press the Greek government to forge ahead with unpopular structural reforms; and second, how to scramble together extra cash to cover a shortfall in the country’s financing for the second half of the year, estimated at €5 billion-€6 billion ($6.81 billion-$8.17 billion).

Of course, this being Europe, nothing was decided: “The meeting was inconclusive, the people familiar with the situation said. Talks with the Greek authorities continue remotely—though representatives of the three institutions, known as the troika, have put on hold their plans to travel to Athens. Concerns are growing because Greece faces a large maturity of government bonds in May of €11 billion. The IMF hasn’t disbursed any aid to Greece since July and is €3.8 billion behind in scheduled aid payments. The IMF insists on having a clear view of the country’s finances 12 months ahead, and this condition hasn’t been met.”

And so the posturing resumes, with the Troika pretending it won’t hand over the funds unless Greece “reforms”, and Greece promising the “reform” as soon as it gets the funds. Nothing new here. What is new, is that finally the facade of Greek sovereignty and independence was stripped away as decisions regarding Greece took place… without
Greece: “Greek Finance Minister Yiannis Stournaras, who was briefing the
press in the same building at the time, wasn’t invited.”

Which is right – after all when a nation is enslaved and has no sovereignty, it doesn’t deserve to have a voice in its future.

On Death and Derivatives » Golem XIV – Thoughts

On Death and Derivatives » Golem XIV – Thoughts.

On Sunday a former Senior Deutsche Bank manager, William Broeksmit,  was found hanged at his house. He was the retired Head of Risk Optimization for the bank and a close personal friend of Deutsche’s Co-Chief Executive, Anshu Jain. Mr Broeksmit became head of Risk Optimization in 2008. He retired in February 2013.

Early this morning, Gabriel Magee, a Vice President of CIB (Corporate and Investment Banking) Technology at JP Morgan jumped to his death from the top of the bank’s 33 story European Headquarters in Canary Wharf.  As a VP of CIB Technology Mr Magee’s job would have been to work closely with the Bank’s senior Risk Managers providing the technology which monitored every aspect of the bank’s exposure to financial risk.

These deaths could well be completely unrelated and just terribly sad for their respective families. On the other hand neither of these men had any obvious problems and both were immensely wealthy. So why would two senior bankers commit suicide within a couple of days of each other?

One place to start is to note that JP Morgan Chase had, at the end of 2012,  a mind boggling, but only silver medal, $69.5 Trillion with a ‘T’ gross notional Deriviatives exposure . While the gold medal for exposure to Derivative risk goes to …Deutsche Bank, with $72.8 or €55.6 Trillion Gross Notional Exposure. Gross Notional means this is the face value of all the derivative deals it has signed. Which the bank would be very quick to tell you would Net Out to far, far less. Netting Out, for those of you who do not know just means that a bet/contract in one direction is considered to balance or cancel out a similar sized bet/contract betting the other way. But as I wrote in Propaganda War – Risk Weighted Lies and further in Propaganda Wars – Balance Sheet Instabilities ,

…this sort of cancelling out is fine on paper but in reality is more akin to  people trying to swap sides in a rowing boat.

Both of the men who killed themselves were intimately concerned with judging and safeguarding their bank from risk.

To give you an idea what sort of risk that size of a derivatives book is consider that the entire GDP of Germany is €2.7 Trillion. Remember that Derivatives are what Warren Buffet dubbed “weapons of financial mass destruction.”

Next question might be, when do these weapons become dangerous? The answer obvioulsy varies in accordance with the type of derivative you are considering. One huge group of derivatives that both JP Morgan and Deutsche both deal very heavily in are currency and interest rate swaps. They become dangerous when there are large moves in currency values and interest rates.

At the moment The Tukish Lira has been in free fall for days. The Turkish central bank tried to defend it and could not stem an unstoppable tide. It then stunned everyone by raising its over-night lending rate (the interst rate it charges to lend to banks over-night) from 4.25% to 12 %!

This did not work either and today the Lira continues to be in crisis, as is the whole Turkish stock market.

The Hungarian Florint is also crashing. As is the entire Argentinian economy. The Peso fell 10% in a single day recently. At the same time there is massive uncertainty surrounding Ukraine as there is also surrounding the interest rates and stability of South Africa.

So imagine you are a large bank with huge derivatives business much of which covers bets in your equally large Foreign Exchange business. Essentially that boat in which you are hoping you can ‘net out’ about 70  Trillion dollar’s worth of derivatives positions is now being bounced about by several large storms.

Many of those derivatives contracts would have been entered into during Mr Broeksmit’s tenure at Deutsche, while Mr Magee would have been overseeing and advising on his bank’s risk exposure as it swayed about over at JP Morgan.

All in all I don’t think it is far fetched to think both these men may have been under huge strain and possibly more afraid than the rest of us, because they were in prime position to know much more than the rest of us.

All of which brings to mind yet another banker who recently fell to his death.

Just under a year ago, in March of 2013, David Rossi, head of communications at one of Itay’s largest and most catastrophically insolvent banks, Monte dei Paschi, fell from the balcony of his third story office at the bank’s head-quarters. How a man who isn’t drunk and who, as far as I am aware, left no suicide note just ‘falls’ from a balcony is a mystery. But the Italian authorities, I have no doubt, did a bang up job.

It turns out that,

Monte dei Pasche…had engaged with shady derivatives deals with Deutsche Bank to cover up hundreds of millions of euros in loses, and then employed some creative accounting to hide the trades from share holders and the public.(My emphasis).

Now what I find strange about this man’s death is that as Head of Communications he would not have done any banking himself. Therefore, he would not have been guilty of any wrongdoing. So why would he kill himself? It seems to me the worst that could have happened to him is that he became aware of rather serious wrongdoing that other people and other banks even,  might have not wanted brought to light….

And then I remembered one more death. Pierre Wauthier, the former Chief Financial Officer (CFO) of Zurich Insurance Group hung himself last year, at his home. Now this death you might think has no possible connection with the others. In fact it has two. Both are, as with the rest of what I freely admit is a speculative piece, circumstantial.

The CEO of Zurich Insurance group at the time of Mr Wauthier’s suicide was Josef Ackermann, former CEO of Deutsche Bank. Mr Ackermann resigned shortly after it was revealed that Mr Wautheir, in his suicide note, had named Mr Ackermann. According to Mr Wauthier’s widow it was Ackermann who had placed her husband under intolerable strain. Of course we don’t know what the issue was that caused the ‘intolerable strain’.  But let’s look a little closer at what tied these two men together.

Mr Ackermann stepped down as CEO of Deutsche Bank in 2012 after ten years at the helm. During that time he had transformed Germany’s largest bank from a large but slightly dull national player into one of the very largest and most agressive of the global banks. One of the ways Ackermann had grown Deutsche so spectacularly was to make it the world’s largest player  in the derivatives market. Nearly all of that 72 Trillion dollars’ worth of derivative exposure was accumulated under his leadership.

Mr Ackermann had built a derivatives position 18 times larger than the GDP of Germany itself.

A year and a half after Mr Ackermann took over at Zurich Insurance Group, Zurich announced it was going to start offering banks a way of holding less capital against their risky assets/loans by offering to insure or ‘buy’ the risk from them. This is know as Regulatory Capital Trade. As one of the archtiects of the trade was quoted at the time,

“We are looking at products where banks would buy insurance for their operational risks issues. These are normally risks that are not covered by traditional insurance.”

This new insurance venture was, on the one hand, in response to the European regulators insisting that banks had to hold more capital against their risky assets and on the other, a result of the dire need of Insurers to find products that could yield them a profit. The trade is a classic result of a period of extended low interest rates where traditionally safe investments like Soveriegn bonds and vanilla loans and securities just don’t pay enough to cover insurers’ needs let alone let them make a tidy profit. In other words those insurers who understood what banks were exposed to and were willing to take the risk on themselves – because they thought they were cleverer – could find yield where others feared to tread. And of course one of the largest pots of risky assets on bank books is derivatives. All those lovely foreign exchange bets and interest rate bets, and derivative trades which underpin the rapidly growing European ETF market (in which guess who is a massive palyer?  Yes, that’s right, Deutsche) – they would all have levels of risk the banks would love to off-load.

Holding more capital against risk might be prudent but it is hell on bank growth and bonuses. Regulatory Capital Arbitrage, is how you game (quite legally, of course) that particuar regulation. The bank gets to keep the underlying asset, while the risk is ‘sold’ to or insured by (depends on how you account for it at both ends) someone else. In this case Ackermann’s Zurich Insurance Group.

In some ways it was a creative move – in the way finance is creative , like making a better land mine I suppose – since Zurich already ran the world largest derivative trading exchange, Eurex. With the new trade Zurich would not just be running the exchange but would now become a major player in the risk trade. Of course this is fine so long as the risk never materializes. Which brings us back to the present spreading turbulence in markets from Ukraine, to Argentina and Turkey.  It is also worth noting Zurich also offers insurance against about 50 or so emerging market banks going under.  Might not seem quite so safe a market to be in just at the moment.

As Chief Financial Officer Mr Wauthier would have had to be on side with Mr Ackermann about the wisdom of this bank-risk insurance trade.

Now I realize, as I said above, that this is all circumstantial and speculative. But derivatives are, as Warren Buffett said, very dangerous. Deutsche is sitting on the world’s biggest pile of them and J P Morgan the second biggest pile. And right now global events are making those risks sweat. When HSBC tries to limit cash withdrawals and so does one of Russia’s largest banks then something somewhere is not healthy. We are , I think, circling around another Morgan Stanley moment.

Sprott: “Manipulation Of Gold By Central Banks Cannot Continue In 2014” | Zero Hedge

Sprott: “Manipulation Of Gold By Central Banks Cannot Continue In 2014” | Zero Hedge.

With Deutsche Bank quitting the price-setting panel for gold and Bafin bearing down on the manipulators, Eric Sprott provides some more color on where the manipulation in the precious metals markets is underway (and when it will end)…

Submitted by Eric Sprott of Sprott Global Resource Investments,

Introduction

As we very well know, 2013 was a difficult but also puzzling year for precious metals investors. The price of gold, silver and their related equities declined by a significant amount while demand for physical bullion from emerging markets and their Central Banks was exceptionally strong.

A common argument that has been made to explain the precipitous decline of the price of precious metals in 2013 is of investors’ disenchantment with precious metals, which had been piling up in exchange traded products as a way for investors to gain exposure to the metals. Proponents of this theory point to the large declines in the total holdings of those ETFs as evidence of investors fleeing the precious metal trade. As shown in Figure 1, the price of both gold and silver suffered very significant declines throughout 2013. Therefore, if this explanation is correct, one would expect the total ETF holdings of both metals to be lower as well.

However, this is not the case. As shown in Figure 2 gold ETFs suffered large redemptions whereas silver ETFs saw their holdings remain more or less constant throughout the year, and this without any observable change in trading patterns in the two largest ETFs; GLD and SLV (Figure 3 shows the ratio of the trading values in the ETFs over time). If redemptions are a symptom of investors’ disenchantment with precious metals as an investment, shouldn’t silver have suffered the same fate as gold? Indeed it should have, but we think the reason silver ETFs were not raided like gold was that Central Banks do not have a silver supply problem, they have a gold problem. As we have argued before, the raiding of gold ETFs is bullish for gold because it reflects an imbalance in the physical market.1

Figure 1: Gold and Silver prices declined significantly in 2013
maag-01-2014-1.gif
Source: Bloomberg

Figure 2: ETF Holdings – Troy oz (millions)
maag-01-2014-2.gif
Source: Bloomberg, tickers ETSITOTL & ETFGTOTL

In this article, we further argue that the April raid on gold and gold ETFs almost backfired by creating a tsunami of buying in India and increased demand to unsustainable levels. In May 2013 alone, Indians imported 162 tonnes2 of gold in a market where monthly global mine production is about 182 tonnes. A continuation of this trend, coupled with strong buying from other Emerging Markets and their Central Banks, would have been overwhelming. But, the response was swift. We suspect that, at the behest of Western Central Banks, the Reserve Bank of India reacted by enacting, in incremental steps, restrictive measures to prevent gold imports (See Figure 4 for a timeline of the major changes made by the Indian Government).3

Figure 3: Traded Value – Ratio of SLV to GLD
maag-01-2014-3.gif
Source: Bloomberg. Traded Value is calculated by taking the total trading volume for a quarter and multiplying it by the average price over that quarter. A ratio of 1 indicates that SLV traded as much, in $ terms, as GLD.

Figure 4: Efforts to Curb Indian Gold Imports
maag-01-2014-4.gif
Source: Bloomberg, Economic Times

 

Supply and Demand Imbalances: The Indian Effect 

We have already discussed at length the supply and demand imbalance in an Open Letter to the World Gold Council, asking them to revise their methodology because it grossly understates the amount of demand coming from emerging markets.4 Our gold supply and demand table (Table 1) reflects the latest available data (2013 Q3 in most cases). World mine production, excluding Chinese and Russian production still stands at about 2,100 tonnes a year. Chinese net imports most likely exceeded 1,700 tonnes for 2013 (81% of world mine production) and demand from the rest of the world is rather stable.5

The overall picture has not changed much since our last article, with the exception of Indian imports. As of the second quarter of 2013, India had cumulative net gold imports of 551 tonnes, which annualizes to 1,102 tonnes.6 However, Q3 data shows net imports of only 31 tonnes (for a total of 582 tonnes YTD), which annualizes to 776 tonnes.

This incredible loss of momentum for “official” gold imports was the result of concerted actions by the Reserve Bank of India and the Indian Government. While the “official” justification for those restrictions is the large Indian current account deficit, this argument makes little sense. According to government officials, Indian’s taste for gold and the corresponding imports worsens the country’s trade balance, worsens its current account deficit and puts downward pressure on their currency, the Rupee.

But, without going into too many details, the classification of gold as a “good” in the trade balance is at best misleading. Since gold is more of an investment vehicle and is not “consumable” per se, it should instead be accounted for in the capital account of the balance of payments instead of the current account. Indeed, Switzerland, which is a large net importer of gold, reports its trade balance “without precious metals, precious stones and gems as well as art and antiques” to reflect fact that those are “investments” rather than consumption goods.9 In this case, why should India be any different and report their trade data excluding gold? To us, all the fuss about gold imports by the Indian Government is a red herring.

So, without the intervention in the Indian gold market, the shortage of gold would have wreaked havoc in the market, a situation that Western Central Banks could not tolerate.

Table 1: World Gold Supply and Demand 2013, in Tonnes
maag-01-2014-5.gif
Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1, Q2 & Q3. Chinese mine supply comes from the China Gold Association and is up to October 2013, the annualized number is a Sprott estimate.8 Russian mine supply comes from the Union of Gold Producers and is up to 2013 Q3. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Nov. 2013 and is annualized to account for the missing month. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1, Q2 & Q3 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1, Q2 & Q3. ETFs data comes from GFMS as well.

 

Conclusion and Outlook for 2014

As demonstrated in our Open Letter to the World Gold Council, there was a large supply-demand imbalance in 2013. The evidence presented here suggests that the decline in the price of gold in mid-2013 and the subsequent raid of gold ETFs (but not silver ETFs) was engineered by Western Central Banks to help solve their physical gold supply problem. However, the resulting increase in Indian gold demand exacerbated the problem. The solution was to restrict Indians from importing gold by all means possible in order to help the Western Central Banks regain control of the gold market.

However, the rate of drain in gold ETFs cannot continue forever; at the current pace of 930 tonnes/year, there are less than two years of gold left in ETFs. Moreover, Indians have proved highly creative at finding ways around import restrictions.10 Smuggling is on the rise and will most likely increase as smugglers become more sophisticated. Overall, we believe that interest in physical gold from emerging markets will remain a driving force.

Besides, mine production is unlikely to grow, as reflected by the significant decrease in capital expenditures expected for the major gold producers (Figure 5).

Accordingly, we believe that the manipulation of gold prices by central banks, as demonstrated by the above analysis, cannot continue in 2014. Therefore, we expect substantial increases in the price of precious metals as the true shortages become obvious.

Figure 5: Capital Expenditures ($mm) – XAU Index Members
maag-01-2014-6.gif
Source: Bloomberg. Consensus analyst estimates are used for years 2013-2015.

 

P.S. Due to recent developments, we would also like to highlight some related media stories

Jan. 17, 2014: Germany’s top financial regulator said possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal

Jan. 17, 2014: Deutsche quits gold price-setting as regulators investigate fix (Did the regulators ask them to?)

Dec. 13, 2013: Bafin Said to Interview Deutsche Bank Staff in Gold Probe

Nov. 26, 2013: U.K., German Regulators Scrutinize Gold, Silver Pricing

Sept. 9, 2013: Sprott Thoughts: A Leaky Fix

 

1 See, for example, “Redemptions in the GLD are, oddly enough, Bullish for Gold”.
2 http://in.reuters.com/article/2013/06/03/gold-india-imports-idINDEE95207H20130603
3 See “Do the Western Central Banks have any gold left?”. Sprott Asset Management LP, Markets at a Glance May 2013.
4 See the full article at: http://www.sprott.com/markets-at-a-glance/open-letter-to-the-world-gold-council/
5 As a reminder, because of our methodology which uses net imports as a proxy for total demand in countries that do not re-export gold, we exclude the “total industrial demand” estimate from the GFMS to avoid double counting. Thus, we underestimate total gold demand because we do not include industrial demand from the countries other than China, India, Turkey and Thailand.
6 As reported by the UN Comtrade Statistics. We use the total dollar amount reported and average quarterly prices to infer the total amount of gold imported and exported.
7 This is calculated by taking the total consumer demand for jewellery, coins and bars for 2013 Q1 & Q2 from table 10 of the WGC’s “Gold Demand Trends” and subtracting from it demand from the individual countries we have listed in the table (China/Hong Kong, India, Turkey, Russia and Thailand).
8 http://translate.google.ca/translate?hl=en&sl=zh-CN&u=http://www.cngold.org/&prev=/search%3Fq%3Dcngold.%26client%3Dsafari%26rls%3Den
9 See the Swiss Customs Administration website: http://www.ezv.admin.ch/themen/04096/04101/index.html?lang=en
10 See, for example: http://www.thestar.com/business/economy/2013/12/27/insatiable_appetite_for_gold_fuels_indias_smuggling_industry.html http://in.reuters.com/article/2013/12/03/india-gold-smuggling-idINDEE9B20HY20131203 http://articles.timesofindia.indiatimes.com/2013-12-29/chennai/45674552_1_airline-staff-gold-smuggling-flight-attendant

German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing | Zero Hedge

German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing | Zero Hedge.

Germany’s blowback against gold manipulation is accelerating. Following yesterday’s report that Bafin took a hard line against precious metals manipulation, after its president Eike Koenig said possible manipulation of precious metals “is worse than the Libor-rigging scandal“, today the response has trickled down to Germany and Europe’s largest bank, Deutsche Bank, which announced that it would withdraw from the appropriately named gold and silver price “fixing”, as European regulators investigate suspected manipulation of precious metals prices by banks. As a reminder, Deutsche is one of five banks involved in the twice-daily gold fix for global price setting and said it was quitting the process after withdrawing from the bulk of its commodities business. The scramble away from gold fixing was certainly assisted by the recent first (of many) manipulation expose in the legacy media, when Bloomberg revealed “How Gold Price Is Manipulated During The “London Fix.” And sure enough, with Germany already very sensitive to the topic of its gold repatriation, and specifically why it is taking so long, it was only a matter of time before any German involvement in gold manipulation escalated to the very top.

Reuters has more:

“Deutsche Bank is withdrawing its participation in the gold and silver benchmark setting process following the significant scaling back of our commodities business. We remain fully committed to our precious metals business,” it said in a statement.

In mid-December, German banking regulator Bafin demanded documents from Deutsche Bank under an inquiry into suspected manipulation of benchmark gold and silver prices by banks, the Financial Times reported, citing sources.

Bafin declined to comment on Friday, but its President Elke Koenig said the previous day that it was understandable that the topic was attracting widespread concern.

“These allegations (about currencies and precious metals) are particularly serious, because such reference values are based – unlike LIBOR and Euribor – typically on real transactions in liquid markets and not on estimates of the banks,” she said in a speech

Needless to say, manipulation of the gold market would not be exactly novel to a bank which has also been named in cases related to the sub-prime crisis, credit default swaps, mortgages, tax evasion and a decade-old lawsuit suit brought by the heirs of late media mogul Leo Kirch, who accuse the bank of undermining the business.

Reuters also reports that Deutsche is now actively marketing its gold and silver fixing seats to another LBMA member, however now that the cat is out of the bag on the gold fixing manipulation scheme (the first of many), it is likely that others will seek to follow in Deutsche’s footsteps and seek to put as much distance between themselves and the wood-paneled room once located in theRothschild office on St. Swithin’s Lane in London.

We wonder which of these five gentlemen is from Deutsche?

So if everyone exits the London fixing market, what happens then?

“It wouldn’t surprise me if the other banks were looking at pulling out as well. Why would they want the aggravation?” said the source, who declined to be named.

“The more worrying point is that, if you don’t have the fixing, what do you have? There’s a lot of contractual business done on the gold fix, and if you’ve got no basis for where the price is, someone is going to lose out.

Well considering that the fixing process over the years was manipulation pure and simple, those who will lose out are the… manipulators? it would seem rather logical. And speaking of manipulation, if indeed Germany is so keen on breaking the manipulators’ back, perhaps it can demand that the pace of its gold returns from the NY Fed and Paris accelerates. It may be surprised at what it finds.

Russia Crisis Haunts Deutsche Bank’s Smith Seeing China Bust – Bloomberg

Russia Crisis Haunts Deutsche Bank’s Smith Seeing China Bust – Bloomberg.

China’s push to open up its economy is winning praise from Goldman Sachs Group Inc. to Morgan Stanley and Jefferies Group LLC, which predicted last month a “massive” multiyear bull run for stocks.

John-Paul Smith doesn’t share the enthusiasm.

When the Deutsche Bank AG equity strategist looks at the country, he says he detects some of the same signs of a financial meltdown that led him to predictRussia’s 1998 stock market crash months in advance. China’s expansion is being fueled by soaring corporate borrowing, a high-risk model that needs to be replaced by the kind of free-market measures and budget cuts that fed Russia’s growth in the aftermath of the country’s default and subsequent 44 percent monthly tumble in the Micex Index (INDEXCF), Smith said.

“There is potential for a debt trap in industrial companies which can trigger an economy-wide financial crisis as early as next year,” Smith said in an interview from London on Dec. 12, a day after he issued a report predicting China’s slowdown will lead to a 10 percent decline in emerging-market stocks next year. “If I am wrong on China, I am wrong on everything.”

Smith’s 2013 call for a drop of at least 10 percent in developing-country stocks has proven prescient. The MSCI Emerging-Markets Index has slid 5.9 percent, trailing the 22 percent rally in MSCI’s developed-markets measure. The Shanghai Composite Index, the benchmark equity gauge in the world’s second-biggest economy, has lost 7.9 percent, heading for its third annual decline in four years. The measure rose 0.2 percent at today’s close after falling for nine days.

Goldman, Jefferies

The selloff in Chinese (SHCOMP) stocks has eased since mid-November, when the government’s top policy makers pledged the biggest expansion of economic freedoms in at least two decades. Measures included encouraging private investment in state-controlled industries, accelerating convertibility of the currency and liberalizing interest rates, an initiative that helped drive interbank borrowing costs to a six-month high last week.

China’s benchmark money-market rate climbed for a seventh day today, with the seven-day repurchase rate, a gauge of funding availability in the banking system, jumping 124 basis points to 8.84 percent, the highest level since June 20.

Morgan Stanley said the free-market push will boost consumption, technology and health-care stocks while Jefferies Group said companies in industries including auto and insurance will do the best amid the bull market rally. Goldman Sachs upgraded Chinese equities to overweight in part because of the country’s “commitment to reform, which seems quite palpable.”

Three-Decade Career

Smith, who has been bearish on China since he joined Deutsche Bank in 2010 from Pictet Asset Management, said he wants to see how the government carries out the policy changes.

The economy is at risk of expanding less than 5 percent annually over the next few years, he said. Gross domestic product has grown less than 8 percent in each of the past six quarters, down from a high of 14 percent in 2007.

“The proof will be in the implementation,” said Smith, who’s the global emerging markets equities strategist at the Frankfurt-based bank. “It will be very interesting to see if they really intend to go down the same ‘hard state liberal economic’ path that Russia did from 1999 to the autumn of 2003. So far, there is no indication they are prepared” for that.

Smith, 52, has honed his market acumen over a three-decade career. Raised in the English town of Glossop, near Manchester, he studied modern history at Oxford’s Merton College before going to work as a European fund manager with Royal Insurance in 1983. From there, he did stints at TSB Investment Management, Rothschild Asset Management and Moscow-based Brunswick Brokerage, before joining Morgan Stanley in 1995 as a Russian equity strategist.

Russia Visit

It was at Morgan Stanley that Smith made the call that he’s still best known for today, a forecast that got its inspiration in part from a visit he made in 1997 to a port city 600 miles (965 kilometers) south of Moscow.

In Rostov-on-Don, he got an up-close look at a combine-harvester maker that surprised him: the company was taking a year to build its planned weekly quota, it was still employing two-thirds of its Soviet-era workforce and it was drowning in unpaid bills and barter deals.

That trip helped Smith understand the growing financial crisis that would lead Russia to devalue the ruble and default on $40 billion of domestic debt in August 1998.

Turning Bullish

In a June 1997 report, he wrote that investors may not have begun to “really focus on the possible fallout” from companies’ growing financial struggles. Smith highlighted the Rostov-on-Don trip in a January 1998 note in which he reiterated that investors were too optimistic. Two months later, he wrote that Russia had to “sort the situation out” that year or its financing burden would become unsustainable and trigger a devaluation.

In the aftermath of the collapse, Smith turned bullish on Russian stocks at an investors’ meeting in New York in 1999. The market soared 235 percent that year. He calls it the best forecast of his career.

“I suggested that Russia was now cheap and should be an overweight and the meeting ended very quickly indeed amid some expressions of minor outrage,” said Smith, who is underweight Russian stocks today.

Too Early

Following those calls, Smith spent nine years at Pictet, first as head of emerging markets equities where funds managed by his team almost quadrupled to $9 billion between 2001 and 2005. His Eastern European Trust Fund, with 40 percent of its assets in Russian equities on average, outperformed the MSCI Emerging Market Eastern Europe dollar index by 1.5 percentage points at the end of 2005.

“When he joined Pictet in 2001, it was like the second coming as the savior of our emerging markets business,” Stephen Barber, a managing director at parent company Pictet & Cie, wrote in a farewell note about Smith in June 2010. “He did seem to perform miracles in the years that followed, as our emerging markets business recovered strongly.”

While Barber said that Smith had an ability to avoid getting caught up in the market euphoria, he often made his calls too early.

“When he was with us, he was for a long period bearish on China,” Barber said. “The analysis was absolutely correct but in the meantime, you can miss out on a bull market.”

“When you have a great strategist who has these insights, you have to nurture these insights, not kill them,” he said.

Credit Boom

Smith wrote an article for the Financial Times in December 2007 saying he sensed that the worst in the subprime mortgage crisis was over and that the U.S. market was poised to rally. The worst financial crisis since the Great Depression followed.

The analyst, who has also been wrongly bearish on oil since April 2011, says he learned to never take a strong view without obtaining detailed understanding of the underlying fundamentals, such as what types of instruments were being held in the financial industry.

Smith’s China call is another strong view. His colleagues at other banks are underestimating the risks, he said.

China’s total credit, including items off bank balance sheets, climbed to about 190 percent of the economy by the end of 2012 from 124 percent in 2008, according to Fitch Ratings Ltd. That was faster lending growth than in Japan during the late 1980s that foreshadowed two decades of deflation, and in the U.S. before the financial crisis of 2008.

“It is really at the corporate level and at the micro level in China that the fate of the financial market and the economy there is going to be determined,” Smith said. “China is not such a safe haven as most market commentators appear to believe.”

 

Change In US Net Worth – By Age Group | Zero Hedge

Change In US Net Worth – By Age Group | Zero Hedge.

By now it is a well-known fact that the Fed’s monetary policies over the past 5 years (and really ever since Greenspan unleashed the Great Moderation) have been very successful at one thing: transferring wealth from the US (and global) middle class and handing it over to the already wealthiest strata of society, either through financial repression, zero savings rates, or generally boosting financial asset values, which as we showed hit a record $63.9 trillion in Q3, or over 70% of total. However, just like the general public’s attention is focused on the quantitative components of the monthly payroll number and completely ignores the qualitative gains or losses in the US labor force, so the broad definition of “middle class” leaves quite a bit to be desired. So what happens if one quantizes society instead of by class with wealth of income cutoff ranges but instead by age? In that case, one gets the following chart prepared by the Urban Institute showing the change in net worth in the period 1983-2010 by age group.

The discrepancy summarized:

Young adults’ ability to grow their personal assets over the past 30 years has decreased considerably. Average wealth for individuals in their 20s and 30s dropped 7 percent from 1983 to 2010, while those 74 and over have seen wealth increase by 149 percent in the same time period. Figure 7 highlights the substantial changes in net worth by age, showing that Millennials today are financially worse off than their parents were at the same age

It is meaningless to make ethical judgments based on the above chart, however the data does confirm one of the most troubling hurdles before any dreams of a virtuous economic recovery can be realized: because it is the younger age groups that drive household formation, and are responsible for the bulk of organic demand for homes – that so critical, missing variable in what would be a true housing recovery (instead of merely using houses as flippable hot potato assets whereby one investor sells homes to another investor with no intention of occupying, in the process making that entry-level home ever more unaffordable for the average young American).

And a question: in a society increasingly torn by conflicts (some of which as if created on purpose): by social status, by race, by ethnicity, by gender, and so many more, how long until one can add age as an ever growing source of social discontent?

 

The 9 Key Considerations To Protect Deposits From Bail-Ins

The 9 Key Considerations To Protect Deposits From Bail-Ins.

The 9 Key Considerations To Protect Deposits From Bail-Ins

Published in Market Update  Precious Metals  on 13 December 2013

By Mark O’Byrne

Today’s AM fix was USD 1,222.75, EUR 891.22 and GBP 750.89 per ounce.
Yesterday’s AM fix was USD 1,243.50, EUR 902.79 and GBP 758.51 per ounce.

Gold fell $26.40 or 2.11% yesterday, closing at $1,226.50/oz. Silver slid $0.79 or 3.89% closing at $19.52/oz.  Platinum dropped $19.01, or 1.4%, to $1,360.74/oz and palladium fell $20 or 2.7%, to $715.25/oz.

Gold has spiked higher in late morning trade in London and is 0.6% higher on the day and 0.35% higher for the week. A higher weekly close this week will be positive from a technical perspective.


What Should Depositors Do To Protect Against Bail-In? 9 Key Considerations

Gold saw a sharp move lower by over 2% yesterday, despite little market moving data or news and other assets seeing less price movement. The price fall could have been due to heightened speculation of a Fed taper as soon as next week. However, if that was the case, one would have expected stocks to have seen similar price falls. Rather stocks were only marginally lower and remain near record highs.


Gold in U.S. Dollars, 10 Day – (Bloomberg)

Peculiar gold price falls have been common in recent weeks and months and have contributed to the 25% price fall we have seen this year.
Therefore, those who have diversified into gold in order to protect their wealth will welcome the move by the German financial regulator Bafin to widen their investigation into manipulation by banks of benchmark gold and silver prices.

The FT reports on the front page today that German banking regulator Bafin has demanded documents from Germany’s largest bank, Deutsche Bank, as part of a probe into suspected manipulation the gold and silver markets by banks.


Gold Prices / Fixes / Rates / Volumes – (Bloomberg)

Currently, gold fixing happens twice a day by teleconference with five banks: Deutsche Bank, Bank of Nova Scotia-ScotiaMocatta, Barclays Bank Plc, HSBC Bank USA, NA and Société Générale. The fixings are used to determine prices globally. Deutsche Bank is also one of three banks that take part in the equivalent process for silver.

The German regulator has been interrogating the bank’s staff over the past several months. Since November, when the probe was first mentioned similar audits in the U.S. and UK are also commencing.

Premiums in China and India remained robust overnight and way over western premiums. Gold on the Shanghai Gold Exchange closed at $1,258.38 at 0700 GMT – a premium of $29.18 per ounce over spot.

Bullion premiums in western markets have seen little movement again this week. One ounce gold bars are trading at $1,276.44/oz or premiums of between 3.75% and 4.5%, and larger 1 kilo  gold bars  are trading at $40,832/oz or premiums of between 3% and 3.5%.

Indian demand declined yesterday but remains robust as dealers were not able to source gold.

Premiums remained steady at $120 per ounce over London prices. Last week, Indian premiums hit a record high of $160/oz. Imports into India have dropped off sharply this year after the Indian government raised the import duty to 10% earlier this year and tied imports volumes to exports, in a bid to curb a rising trade gap and the rush to gold by Indians concerned about the continuing devaluation of their rupee.

If the Fed defer a taper, we should see gold bounce from oversold levels which could help it test $1,300/oz again.

We do not believe the Fed will ‘taper’ next week as the U.S. economy remains very fragile and any reduction on bond purchases could lead to turbulence in financial markets, a rise in bond yields and affect the wider economy.

But if the Fed does reduce its massive bond buying programme marginally next week, gold will likely fall to test strong support at $1,200/oz again.

Gold looks likely to bounce back next year and the positive drivers for gold are strong store of wealth physical demand, particularly in China, due to macroeconomic, systemic and monetary risk.

The eurozone debt crisis is far from resolved and sovereign debt issues in Japan, the UK and the U.S. will likely rear their ugly heads again leading to safe haven demand for gold.


U.S. Treasury Amount of Outstanding Debt – Price/Billion – (Bloomberg)

We pointed out yesterday why it is important to remember that the Federal Reserve is printing nearly $20 billion every single week. The U.S. National Debt is now over $17.2 trillion and continuing to rise and the U.S. has unfunded liabilities (Social Security, Medicare and Medicaid) of between $100 trillion and $200 trillion.

Staggering numbers which suggest alas that the U.S. politicians are rearranging chairs on the titanic.

What Should Depositors Do To Protect Against Bail-In?
Depositors in G20 or FSB regulated countries should examine the financial health of their existing bank or banks.

Some issues to watch would include institutions with legacy issues such as a high level of non-performing loans, a possible need for recapitalisation and low credit ratings. These banks should be avoided, as they have a higher chance of needing restructuring and hence a higher chance of a bail-in.

Deposits are insured for up to €100,000, £85,000 and $100,000 per person, per account in the EU, the UK and the U.S. respectively. Although there is no guarantee that an insolvent government will be able to fund its deposit insurance scheme, it is uninsured deposits which are more at risk of a bail-in.

Therefore, it would be prudent for depositors not to hold bank deposits in excess of these figures in any one financial institution since –
a) they are not insured, and
b) deposits in excess of those arbitrary figures are more likely to be bailed in

There is an assumption that in the event of bail-in, only bank deposits of over these arbitrary figures would be vulnerable. However, there is no guarantee that this would be the case. Should a government be under severe financial pressure, it may opt to only protect deposits over a lower amount (e.g. €50,000, £50,000, $50,000).

Since capital controls have already been imposed on one Eurozone country, Cyprus, it seems quite likely that they will be imposed in other countries in the event of new banking crises or a new global systemic crisis.

Cypriot authorities imposed restrictions on bank money transfers and withdrawals, including a daily cash withdrawal limit of €300 per day. Many banks had to restrict withdrawals to €100 per customer per day in order to prevent them running out of euros. Electronic wire transfers were suspended for a number of days, prior to being allowed but with a low maximum daily limit.

Therefore, having some of one’s savings outside of the banking system makes sense. It should be held in a form that is highly liquid, such as gold, and can be converted back into cash in the event of cash withdrawal restrictions. Cypriots who owned gold were less affected by the deposit confiscation or ‘haircut’ as they could sell their gold in order to get much needed euros.

In the coming years, the role of gold in an investment portfolio will become more important due to its academically and historically proven safe haven qualities. Now, with the risk of bail-ins, savers and corporate treasurers should consider diversifying their savings portfolio and allocate 5% to 10% of the overall savings portfolio to gold.

However, it will not be enough to simply allocate funds to some form of gold investment. In the same way that certain banks are more risky than others, so too are many forms of gold speculation and investment more risky than others.

It is vitally important that those tasked with diversifying deposits do not jump out of the frying pan and into the fire.

An allocation to actual physical gold owned with the safest counterparties in the world will help depositors hedge the not insignificant risk of keeping money on deposit in many banks today.

It is important that one owns physical gold and not paper gold which could be subject to bail-ins.

Physical gold, held in allocated accounts conferring outright legal ownership through bailment
remains the safest way to own gold. Many gold investment vehicles result in the buyers having very significant, unappreciated exposure and very high counterparty risk.

Owning a form of paper gold and derivative gold such as an exchange traded fund (ETF) in which one is an unsecured creditor of a large number of custodians, who are banks which potentially could be bailed in, defeats the purpose of owning gold.

Potentially, many forms of gold investment themselves could be bailed in and the FSB’s inclusion of Financial Market Infrastructures in potential bail-ins including “central counterparties, insurers, and the client assets held by prime brokers, custodians and others” underlines the importance of owning unencumbered assets that are owned directly.

Extensive research shows that owning gold in an investment portfolio enhances returns and reduces the entire portfolio’s volatility over the long term. In the coming years, a diversified savings portfolio with an allocation to gold, will reduce counterparty risk and compensate for very low yields.

The wise old Wall Street adage to always keep 10% of one’s wealth in gold served investors well in recent years. It will serve those attempting to safeguard deposits very well in the coming years.

In general, people should avoid holding euros or other cash outside of their bank accounts, however there is now a case to be made that holding a small amount of cash outside of vulnerable banks would be prudent. Just enough cash to provide for you and your family’s needs for a few weeks.

However, this should never be done unless the cash is held in a very secure way, such as a well hidden safe or safety deposit box. It would be safer not to keep assets in a safety deposit box in a bank.

Overall, diversification of deposits now has to be considered.

This means diversification across financial institutions and across countries or jurisdictions globally.

Safest Banks
Financial institutions should be chosen on the basis of the strength of the institution. Jurisdictions should be chosen on the basis of political and economic stability. A culture and tradition of respecting private property and property rights is also pertinent.

While depositors need to do their own due diligence in which banks globally they may wish to open a bank account, Table 1 (see From Bail-Outs to Bail-Ins: Risks and Ramifications)  illustrates that there are numerous banks globally which are still perceived to be financially strong. The banks in table 1 have been ranked by taking the average long term issuer credit rating applied to the bank by the main global credit rating companies, Moody’s, S&P and Fitch.

A credit rating is an assessment of the solvency or creditworthiness of debtors or bond issuers according to established credit review procedures. These ratings and associated research help investors analyse the credit risks associated with fixed income securities by providing detailed information of the ability of issuers to meet their obligations. A rating is continuously monitored. It enables investors and savers to measure their investment risk.

Long term credit ratings of the major agencies take into account factors such as financial fundamentals, operating environment, regulatory environment, corporate governance, franchise value of the business, and risk management, as well as the potential financial support available to the bank from a parent group, or a local or national government.

While credit ratings express an opinion on a bank’s vulnerability of defaulting, they don’t quantify the probability of default. However, credit ratings are still widely used and are one of the most commonly used ways of ranking the relative financial strength of banks.

The credit rating reflects the credit risk or general paying ability of the issuer, and so reflects the solvency or creditworthiness of the issuer from the point of view of investors who, along with depositors, are the main creditors of the bank. Certain countries host more financially strong banks than others as can be graphically seen in the table.

Notice that many of the safest banks in the world are in Switzerland and Germany.

Indeed, it is interesting to note that despite the Eurozone debt crisis, many of the safest banks in the
world are in the EU or wider Europe. These include banks in the Netherlands, Luxembourg and France – despite many French banks being very vulnerable as is the French sovereign.

Outside of Europe, Singapore has some very strong banks, as does Norway, Australia, Canada and Sweden.

There are only a few UK and U.S. banks on the list of global top banks that should give pause for thought.

There are a number of institutions in jurisdictions such as Hong Kong, Chile, Japan and some Middle Eastern countries. As of yet, banks in the large emerging markets have not made their mark but we would expect banks in China, Russia, Brazil and in India to begin moving up the table in the coming years. The sounder sovereign position and lack of public and private debt in these countries will help in this regard.

There are no banks from problem European economies on the list for good reason. Their banks do not have high enough credit ratings. In fact, banks from Cyprus, Greece, Portugal, Spain, Italy and Ireland consistently had relatively low long term ratings from the ratings agencies. In terms of ratings, they rank nowhere near the top 20 banks in the world and most are ranked between 200 and 400.

Besides considering the relative safety of different banks, with interest rates so low on bank deposits and increasing taxes on interest earned on deposits leading to negative real interest rates – depositors are not being rewarded with adequate yields to compensate for the risk to which they are exposed.

Thus, as is often the case, savers need to consider alternatives to protect their wealth

Without a clearly thought out plan, many will be prey for the financial services sales machine and brokers and their array of more risky investment and savings products – including so called “capital guaranteed” products – many of which are high risk due to significant and unappreciated counterparty risk.

It is vitally important that investors have independent custodians and trustees. This greatly reduces counterparty risk should a broker, financial adviser, insurance company or other financial institution become insolvent.

9 Key Considerations
Depositors internationally should examine the financial health of their existing bank or banks. Overall, diversification of deposits now has to be considered. However, it is vitally important that those tasked with diversifying deposits do not jump out of the frying pan and into the fire. This means diversification across financial institutions and across countries or jurisdictions globally.

Financial institutions should be chosen on the basis of the strength of the institution. Jurisdictions should be chosen on the basis of political and economic stability. A culture and tradition of respecting private property and property rights is also important.

1. Diversify savings across banks and in different countries

2. Consider counterparty risk and the health of the deposit-taking bank

3. Attempt to own assets outright and reduce risk to custodians and trustees

4. Own physical gold in allocated accounts with outright legal ownership

5. Avoid investments where there is significant counterparty risk, such as exchange traded
funds and many structured products

6. Avoid banks with large derivative books and large mortgage books

7. Monitor banks’ and institutions’ financial stability

8. Monitor deposit and savings accounts’ terms and conditions

9. Monitor government policy pertaining to banks and bank deposits

Download Protecting your Savings In The Coming Bail-In Era (11 pages)

Download From Bail-Outs to Bail-Ins: Risks and Ramifications –  Includes 60 Safest Banks In World  (51 pages)

 

 

Deutsche Bank Investigated In Gold Manipulation Probe | Zero Hedge

Deutsche Bank Investigated In Gold Manipulation Probe | Zero Hedge.

month ago, regulators in Europe began their investigation into manipulation of the “London gold fixing” (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany’s financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets.  As The FT reportsBaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.

 

Via The FT,

Germany’s financial regulator has demanded documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.

 

 

Deutsche Bank is one of five banks that take part in the twice-daily “London gold fixing”, and one of three banks that take part in the equivalent process for silver.

 

 

Some bankers believe BaFin has come under pressure to show it is willing to get tough on suspected market manipulation. It was widely seen to have been slow to respond to the concerns over possible manipulation in the forex market expressed by other regulators around the world earlier this year.

 

Although the gold and silver fixings are, like Libor, set by small groups of banks, they contrast with the process for setting Libor in that they are based on trading activity rather than theoretical quotes.

 

 

The visit to Deutsche offices signals that BaFin now has greater concerns over the precious metals markets. Officials have asked to observe documents and processes related to precious metals trading as well as to interview bankers, the person said.

 

 

The other banks that take part in the gold fixing are Barclays, Bank of Nova Scotia, HSBC and Société Générale. The other banks involved in silver fixing are Bank of Nova Scotia and HSBC. As the only German member of either fixing, Deutsche is the only bank to come under BaFin’s remit.

Of course, despite day after day of closing price smackdowns (and the very occasaional vertical ramp), we are sure the regulators will find no wrong doing… for, as we noted here,this manipulation is by design, not malfeasance…it’s for your own good…

 

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