Daily Market Update

Threats Posed By “Bank Holidays” and “Cashless Society”

Cash Withdrawal Limits and “Bank Holidays” Coming

  • Concerns that next crisis may be imminent
  • Bail-ins, withdrawal limits and negative interest rates may be imposed
  • FT proposes a ban on “barbarous relic” cash
  • Central banks would have people “completely under their control” – Bonner
  • Gold in safe jurisdictions will again protect wealth

Collapsing commodities prices, erratic market turmoil and the bursting of Chinese bubbles are leading to a crisis in confidence in the economic system across the globe. The long-expected crisis to which the global financial and systemic crisis in 2008 may have been a mere prelude may be upon us.

Governments have no appetite for further bailouts. The EU states have passed legislation which will make the banks or rather unfortunate and unsuspecting depositors liable for the bank’s lending and speculative profligacy.

It is claimed that this is to “protect” the taxpayer. In reality it will likely lead to bail-ins – the confiscation of deposits. It is likely that that in a crisis within the banking system this bail-in mechanism would be imposed on an impromptu “bank holiday”  followed by limits on cash withdrawals as were applied in Cyprus and more recently to depositors in Greece.

As has been pointed out by many other analysts, the unelected powers-that-be have used all their conventional weaponry to stave off the consequences of their irresponsible ultra loose monetary policies and massive buildup of debt globally – the largest ever seen in the history of the world.

The typical response to a crisis has been to slash rates from somewhere around 6% – the historic post war norm in the west – to between 0% and 1%. This has stored up an even crisis in the future – the question is not if we have another crisis but when.

With interest rates now near zero, rates cannot be slashed any further. Unless of course, further “unconventional” weaponry are deployed upon the citizens to encourage them to spend. Further QE and QE$ is likely. Another option is negative rates – where depositors are charged by banks to hold their money. Both constitute weapons of financial and monetary repression in the deepening “war on cash.”

Bail-ins, withdrawal limits and negative interest rates would provoke a wave of withdrawals, further undermining the banking system – as was seen in Greece.

Hence, the deep concern when the Financial Times recently proposed abolishing cash altogether.

In a piece entitled The Case for Retiring Another ‘Barbarous Relic the FT laments the existence of cash. In the view of the editorial, cash limits the capacity of omniscient central banks to bully savers into parting with the fruits of their own labour to “stimulate” debt laden economies.

“The worry is that people will change their deposits for cash if a central bank moves rates into negative territory.”

Armstrong Economics

Bill Bonner from Bonner and Partners has written an excellent piece on what the proposed ban on cash fully implies. He explains how such a move could have Orwellian consequences. The central bank, not to mention individual accounts, he writes, “will have you completely under their control”.

“You will buy when and what they want you to buy. You will be forced to keep your money in a bank – a bank controlled, of course, by the feds. You will say that you have ‘cash in the bank,’ but it won’t be true. All you will have is a credit against the bank. (Bank deposits are nothing more than IOUs from your bank to you.)”

He continues:

“You will be completely surrounded. If the feds want to force you to spend… or invest… your money, they will simply impose a ‘negative interest rate.’ They will do this by simply imposing a fee, or tax, on deposits greater than the interest rate you receive on your savings.”

During a financial crisis following a ban on cash Bonner writes:

“You will be locked into a bank account with a bankrupt institution. And the feds and their bank cronies will tell you when and how you can have access to your own money.”

Bonner also suggests that there may then be an attempt to prevent the sale of gold bullion coins and bars to the public in a desperate attempt at neutralising its qualities as a store of wealth and safe haven money.

One cannot have a free market or a free society if citizens are banned from choosing which form of money and which form of payment they choose to use. Such economic totalitarianism is liable to further erode trust in the financial system and actually contribute to runs on banks. Exactly the opposite effect that the proponents of the cashless society claim to be trying to avoid.  

Fostering dependence on irresponsible banks and a still very vulnerable banking sector will make the entire western financial and economic system even more vulnerable.

Forcing entire nations to use electronic currency also seems imprudent at a time when electronic magnetic pulse warfare may be a key weapon of choice of terrorists and powerful state actors. Electric grids could be disabled for periods of time – rendering all commerce impossible in a cashless society.

Without electricity and computer or internet access, one could not access your current and savings account or make electronic payments.

Fostering absolute dependence and giving banks an even more entrenched and powerful monopoly over the issuance of credit and control of citizens savings and spending is a recipe for economic disaster. This is especially the case in an age of cyber warfare when banks have already been shown to be vulnerable to hacking.  

The current drive towards a cashless society shows the importance of being diversified and not having all your savings and assets within the vulnerable financial and banking system.

It underlines the importance of having direct ownership of some of your wealth – be that cash or gold bullion in a safe deposit box or bullion coins and bars in the safest vaults, in the safest jurisdictions in the world.

Today’s Gold Prices:  USD 1106.35, EUR 980.85 and GBP 716.87 per ounce.
Yesterday’s Gold Prices: USD 1107.75, EUR 989.73 and GBP 720.32 per ounce.

Gold rose 0.7% on the COMEX yesterday and rebounded from a one month low. The most active gold contract for December delivery gained $7.30, or nearly 0.7 percent, to settle at $1,109.30 per ounce. Gold rebounded on what appears to have  been short covering and a bit of safe haven buying.

Gold in USD – 1 Week

Falling European equities indices likely supported gold and gave a safe haven bid. Yesterday, the FTSE 100 Index, fell 1.2 percent, while French stock market benchmark index CAC 40 was also down 1.46 percent. Asian share were mixed but mostly marginally down overnight and European shares are marginally lower again this morning.

Gold in Singapore was marginally lower and in early European trading gold remained under pressure. Silver, platinum and palladium are all also a bit weaker, with palladium the biggest faller, down 1.2% today.

Still gold is currently set for a third straight week of marginal losses. Unless, we rally sharply before the end of the day, gold is set for a 1.2% fall this week. Silver conversely is higher this  week and is up nearly 1%.

Palladium, which Russia has a near monopoly in terms of production,  is outperforming, however, on a weekly basis, with a gain of 1.6% this week. Platinum’s down 1.2% for the week.

Global demand for coins and bars remains robust and this is especially the case in China. One such indication of that demand is that yesterday, the Hong Kong CME contract saw the highest daily withdrawals of gold kilo bars from the exchange at 19.178 tonnes.

Another indication is the massive Chinese gold bullion imports from the United Kingdom have seen a significant uptick this year. In the first half of 2015 they are at a whopping 112 tonnes, compared to 110 tonnes for the full year in 2014.

This very significant increase likely reflects increased official Chinese demand. The PBOC is continuing to build its gold reserves in a bid to rival the near 8,500 metric tonnes that the U.S. is believed to have. The PBOC announced another increase to their reserves this week and they now stand at 1,693 metric tonnes – less than 20% of the reputed U.S.’ reserves.

Bullion buyers expect higher prices due to a combination of geopolitical, macroeconomic and monetary risk.

The Middle East is increasingly volatile and we appear to on the brink of a war in the region. This comes at a time of deep tensions with an increasingly assertive Russia.

Geopolitical risk remains high given increasing chaos in much of the Middle East and rising tensions between NATO and Russia. Russian forces have joined military operations supporting government troops in Syria, Reuters reports and today come reports from media in Israel that Iranian troops have joined their Russian counterparts.

Turkish warplanes bombed Kurdistan Workers Party (PKK) targets in northern Iraq overnight, a security source told Reuters this morning. This is the latest in a series of daily air strikes on the militants as conflict surges in southeast Turkey, Iraq and much of the Middle East.

A further deterioration in the situation in the Middle East including western powers bombing Syria and a likely Russian military response – would likely lead to a sharp escalation in safe haven gold buying.

There is also the ongoing risk of terrorism. Were ISIS to launch a terrorist spectacular on western soil, it could be expected to come on the anniversary of September 11th, 2001. The ‘911’ anniversary is today.

Given the confluence of still elevated geopolitical, systemic and monetary risks,  we are bullish as we enter the seasonal ‘sweet spot’ for gold in the autumn period prior to Indian festivals and Chinese New Year.

Gold looks to be in the process of bottoming and while the technicals remain quite weak, the fundamentals – of an uncertain global economy, volatile and vulnerable stock markets and robust global demand for gold, particularly from China – are quite positive.


Gold snaps a 10-session string of losses – MarketWatch
“Bullion buyers expect higher prices due to a combination of geopolitical, macroeconomic and monetary risk” – MarketWatch
Gold and Oil Back in Favor as Commodity Funds See First Flows in 6 Months – Bloomberg
LME says in talks on launch of precious metals derivatives – Reuters
Iranian troops join Russians in Syria fighting – Yedioth Internet


Mark OByrne


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