Daily Market Update

Bail-In Regime Facing Increasing Opposition In EU

Today’s AM fix was USD 1,321.50, EUR 953.19 & GBP 787.73 per ounce.
Yesterday’s AM fix was 1,309.75, EUR 949.92 & GBP 782.74 per ounce.

Gold rose $2.30 or 0.18% yesterday to $1,308.80/oz. Silver lost $0.13 or 0.65% to $19.88/oz.

Market Futures Snapshot – (Financial Visualisations)

Gold extended gains to a third session today, scaling to fresh two week highs above $1,320/oz. Silver surged 2.5% to $20.26/oz.

Gains were due to geopolitical tensions, dovish sounds from the Fed and the very poor exports data from China which led to concerns about the Chinese and global economy. Minutes from the Federal Reserve’s policy meeting which showed that officials were not keen on increasing interest rates anytime soon are also supporting gold.

Low interest rates, which cut the opportunity cost of holding non yielding bullion above other assets, have been an important factor driving prices higher in recent years. Real interest rates are set to remain negative for the foreseeable future which will be supportive of precious metals.

Silver in U.S. Dollars – 5 Years (Daily)

Gold has gained 1.2% in the previous two sessions due to rising geopolitical tensions between Russia and NATO and the West. These tensions are set to remain and will not be resolved anytime soon.

Silver continues to be favoured by contrarian investors who see it as oversold and very undervalued vis a vis other assets including gold.

Bail-In Regime Facing Increasing Opposition In EU
The landmark EU agreement on a common rulebook for handling bank failures, including bail-ins, is in danger of unravelling over the fine print restricting when a state can intervene to rescue a struggling bank according to the Financial Times.

Britain is facing objections from several other EU member states as it scrambles to revise a political deal, hastily reached in December. The FT reports that it is “an attempt to protect the Bank of England’s emergency role as covert lender of last resort.”

The political stand-off over the bank resolution directive – including bail-ins of bank depositors – comes days before the European parliament is supposed to adopt the agreed text of the legislation.

While London insists it is belatedly rectifying a technical discrepancy, other diplomats suspect it is revisiting a fundamental element of the reforms, which aim to spare taxpayers from the costs of bank failure.

“This is a complete mess, a nightmare and we have to decide what to do fast,” one person involved told the FT.

At issue is what form of support a state can provide to a lender in difficulty without triggering a so-called bail-in, where losses are imposed on bond holders who lent money to a bank and on depositors – both household and corporate.

The British want to clarify that central banks can extend liquidity even when relying on a specific government guarantee, without triggering haircuts on bondholders. The position is acceptable to parliament but, since Friday, has prompted several member states to raise concerns. At this late stage any revisions to the text require unanimity.

It is important to realise that not just the EU, but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations have plans for bail-ins in the event that banks and other large financial institutions get into difficulty again. This seems likely given the lack of effective and real reform.

The coming bail-ins pose real risks to investors and of course depositors – both household and corporate. Return of capital, rather than return on capital is now of paramount importance.

Educate yourself about this emerging threat to your livelihood by reading:

Bail-In Short Guide: Protecting your Savings In The Coming Bail-In Era

Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications

Mark O'Byrne
Executive Director


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