{"id":24582,"date":"2011-10-19T08:50:41","date_gmt":"2011-10-19T12:50:41","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=24582"},"modified":"2011-10-19T08:50:41","modified_gmt":"2011-10-19T12:50:41","slug":"physical-gold-demand-strong-banks-are-insolvent-not-just-illiquid-and-must-recapitalize-for-new-world-order","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/10\/19\/physical-gold-demand-strong-banks-are-insolvent-not-just-illiquid-and-must-recapitalize-for-new-world-order\/","title":{"rendered":"Physical Gold Demand “Strong”, Banks are “Insolvent Not Just Illiquid” and “Must Recapitalize for New World Order”"},"content":{"rendered":"

London Gold Market Report<\/strong>
\nfrom Ben Traynor<\/strong>
\nBullionVault<\/strong><\/a>
\nWednesday 19 October, 07:45 EDT<\/strong><\/p>\n

U.S. DOLLAR gold bullion\u00a0prices fell to $1644 an ounce Wednesday morning London time \u2013 a 2.2% drop from last week’s close \u2013 before bouncing, while stock markets rallied following reports that an agreement may be close on enlarging the Eurozone bailout fund.<\/p>\n

Silver bullion\u00a0fell as slow as $31.37 per ounce \u2013 2.6% down for the week so far \u2013 while US Treasury bonds dipped and commodities were broadly flat.<\/p>\n

“Physical demand for gold remains strong,” says Marc Ground, commodities strategist at Standard Bank.<\/p>\n

“As we’ve seen in the past few weeks, we foresee significant interest emerging below $1,650.<\/p>\n

Therefore, we remain confident that a sustained fall below this level is unlikely, although a temporary dip towards $1,600 could be on the cards if the speculative market continues to shun gold.”<\/p>\n

“At the moment it’s just a traders’ market rather than an investors’ market,” reckons one\u00a0gold bullion\u00a0trader in Singapore.<\/p>\n

“It goes 20 bucks one way and 20 bucks the other way, then we are unchanged. It lacks a main driver.”<\/p>\n

European stock markets saw healthy gains this morning \u2013 with banking stocks among the main winners, a phenomenon also observed in Japan and the US over the past 24 hours.<\/p>\n

US stock markets rallied in late trading the previous day \u2013 with the Dow jumping over 250 points in fifteen minutes \u2013 following a report in British newspaper the Guardian that France and Germany had agreed to increase the European Financial Stability Facility to \u20ac2 trillion.<\/p>\n

Eurozone officials however played down the rumors. German finance minister Wolfgang Schaeuble has briefed coalition colleagues that the EFSF should be increased to a maximum of \u20ac1 trillion, according to FT Deutschland, which did not cite its source.<\/p>\n

Recent weeks have seen various options discussed for increasing the scale of the EFSF \u2013 including leveraging it with European Central Bank funds and using the EFSF’s \u20ac440 billion to guarantee a portion of privately-held sovereign debt, much as an insurer would.<\/p>\n

Eurozone national parliaments have now ratified a July agreement to expand the scope of the EFSF \u2013 granting it powers to buy government debt and recapitalize banks.<\/p>\n

“Gold has nowhere to go unless there is clarity on what Europe wants to do,” says Ronald Leung, Hong Kong-based\u00a0gold bullion\u00a0dealer at Lee Cheong Gold Dealers.<\/p>\n

Elsewhere in Europe, British, French, German, Irish and Spanish banks have announced plans to reduce their size by a collective \u20ac775 billion over the next two years \u2013 through asset sales and reduced lending \u2013 in order to comply with expected higher capital ratio requirements, news agency Bloomberg reports.<\/p>\n

Morgan Stanley estimates that banks Europe-wide \u2013 several of which have expressed reluctance to recapitalization as they fear dilution of existing shareholders \u2013 will eventually need to shrink by \u20ac2 trillion.<\/p>\n

Asset sales, however, “just won’t work” Simon Maughan, head of sales and distribution at MF Global UK in London.<\/p>\n

“Asset sales are impractical in the current environment…every bank is selling, and no bank is buying…Beyond that, the magnitude of the cuts the banks are talking about is nowhere near the likely required amount of deleveraging. They need to reduce hundreds of billions more to adjust to the new world order. There has to be a recapitalization.”<\/p>\n

Ratings agency Moody’s lowered Spain’s sovereign credit rating on Tuesday by two notches from Aa2 to A1, while maintaining its negative outlook. Fellow ratings agencies Fitch and S&P have both downgraded Spain this month.<\/p>\n

Here in London, the nine members of the Bank of England’s Monetary Policy Committee voted unanimously in favor of an additional \u00a375 billion of quantitative easing at this month’s MPC meeting, minutes published this morning show.<\/p>\n

The MPC was also unanimous in its decision to keep its interest rate on hold at 0.5% – where it has been since March 2009.<\/p>\n

“The provision of additional liquidity support to countries or institutions in trouble can buy valuable time,” Bank of England governor Mervyn King said on Tuesday.<\/p>\n

“But that time will prove valuable only if it is used to tackle the underlying problem… Four years into the crisis it is surely time to accept that the underlying problem is one of solvency not liquidity \u2013 solvency of banks and solvency of countries.”<\/p>\n

Over in Washington, US regulator the Commodity Futures Trading Commission voted 3-2 yesterday in favor of imposing “position limits” on traders \u2013 including traders of silver and\u00a0gold futures\u00a0on New York’s Comex exchange \u2013 in order to curb “excessive speculation”.<\/p>\n

Despite voting in favor of the measure \u2013 which has been designed to accord with last year’s Dodd-Frank legislation on financial services \u2013 CFTC commissioner Michael Dunn called position limits “a sideshow”.<\/p>\n

“No one has proven that the looming specter of excessive speculation in the futures markets we regulate even exists,” he said.<\/p>\n

Gary Gensler, chairman of the CFTC, said the rule was necessary to “protect the markets both in times of clear skies and when there is a storm on the horizon”.<\/p>\n

“This agency is setting itself up for an enormous failure,” countered Jill Sommers, who voted against the rule, adding that the CFTC risks being blamed for high commodity prices if the limits do not have the effect of curbing price rises.<\/p>\n

The new rule “is likely to affect the amplitude of the swings in prices, and drive business away from Comex to other forums such as OTC [over-the-counter], MCX [the Multi Commodity Exchange in Mumbai], or Hong Kong,” reckons David Thurtell, metals strategist at Citigroup in London.<\/p>\n

Ben Traynor<\/strong>
\nBullionVault<\/strong><\/p>\n

Gold value calculator \u00a0\u00a0| \u00a0\u00a0Buy gold online at live prices<\/strong><\/a><\/p>\n

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.<\/p>\n

(c) BullionVault 2011<\/strong><\/a><\/p>\n

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events \u2013 and must be verified elsewhere \u2013 should you choose to act on it.<\/p>\n","protected":false},"excerpt":{"rendered":"

U.S. DOLLAR gold bullion prices fell to $1644 an ounce Wednesday morning London time \u2013 a 2.2% drop from last week’s close \u2013 before bouncing, while stock markets rallied following reports that an agreement may be close on enlarging the Eurozone bailout fund.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-24582","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/24582","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=24582"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/24582\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=24582"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=24582"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=24582"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}