Risk Of Bank Runs And Forcible FX Conversion of Savings Deepens
Commodities / Gold and Silver 2012 May 29, 2012 - 06:25 AM GMTBy: GoldCore
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.
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