Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold for When Markets Go Bump in the Night

Commodities / Gold and Silver 2016 Oct 06, 2016 - 10:17 AM GMT

By: Michael_J_Kosares

Commodities

“Gold has worked down from Alexander’s time. . .When something holds good for two thousand years, I do not believe it can be so because of prejudice or mistaken theory.” – Bernard Baruch

We should not be surprised that the long-standing troubles at Deutsche Bank would appear to be coming to a head now. For global financial centers, October is often the cruellest month – a time when stock markets and whole economies have been known to go bump in the night. The Panic of 1907, the Crash of ’29, Black Monday 1987, the Friday the 13th crash 1989, the Asia Crisis of 1997, the downturn of 2002 and the launch to bear market in 2007 – all took place in the month of October.


Deutsche Bank’s train wreck is being compared to the Lehman Brothers meltdown in 2008 as an event that could derail other international banks both in Europe and across the pond in the United States. “In our opinion,” says Nikolaos Panigirtoglou, JP Morgan market strategist, “it is not so much funding issues but rather derivatives exposures that are more likely to trouble markets going forward if Deutsche Bank concerns continue. This is especially true if these concerns propagate into a confidence crisis inducing more rapid unwinding of derivative contracts.” This past June, the International Monetary Fund issued a report citing Deutsche as “the most important net contributor to systemic risks” followed by HSBC and Credit Suisse.

Similarly, a recent report from the United Nations Conference on Trade and Development (UNCTAD) warns that “There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis which began in the US housing market in late 2007 before spreading to the European bond market.” [Emphasis added.]

Gold firmly established its reputation as a hedge against disinflation and related systemic bank risks in the aftermath of the “Lehman moment” in 2008. An important component of gold’s rally this year has been capital flight from the global financial system pushed by the low-to-negative interest rate environment and the potential for resulting instability in the global banking sector. That flight to safety is likely to be compounded if the potential matures to major banks being pushed against the ropes. Deutsche Bank is this respect could be the first in a series of titanic financial sector disasters, much like what happened in 2008-2009.

As we ponder whether or not a third leg of the financial crisis might be upon us, we should recall that in the wake of the Lehman Brothers bankruptcy gold more than doubled in value over the ensuing three year period. As was the case with Lehman Brothers in 2008, the public discussion on Deutsche Bank earlier this month immediately went to whether or not it would be bailed out by the German government, Bundesbank or the ECB. Of course, in Lehman’s case the answer was “no” and many believe that witholding the bailout launched the 2008 financial crisis.

At first blush, European authorities including the German government rejected the idea of a bailout, though few believe that notion would prevail if push came to shove. The fact of the matter is that even if Europe would concede to a bailout, it would not necessarily reverse the negative effects on markets even if it were to occur. Stocks dropped precipitously in the wake of the 2007-2008 crisis and gold ultimately ran to all-time highs despite the U.S. federal government’s bailout measures.

Note also the initial gut-check drop from the $1000 mark early in the crisis. Gold dropped as major players were forced to liquidate paper gold holdings to cover losses in other parts of their trading books. At the time, the mantra for gold and silver was “buy the dips.” Many did just that and learned first-hand how gold acquired the safe haven reputation referenced by Mr. Baruch at the top of the page during a financial crisis launched on another October morning back in 1929.

For Part 2 of this discussion, “Too big to fail or too big to bail,” along with the rest of the October issue of News & Views – Forecasts, Commentary & Analysis on the Economy and Precious Metals, we invite to subscribe at our registration page.  There is no charge for the service and your participation is welcome.

Other topics covered in this month’s issue include Russia’s important policy of gold accumulation for its national treasury, the surprising strength in the silver ETFs, an interesting piece on the long term evolution of the gold market and some background on what a prominent member of the Council on Foreign Relations thinks about gold (Titled “An enlightened minority”).  We think you will also gain from this issue’s Chart of the Month on gold under varying longer-term interest rate circumstances.

By Michael J. Kosares
Michael J. Kosares , founder and president
USAGOLD - Centennial Precious Metals, Denver

Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business.  He is also the editor of Review & Outlook, the firm's newsletter which is offered free of charge and specializes in issues and opinion of importance to owners of gold coins and bullion.  If you would like to register for an e-mail alert when the next issue is published, please visit this link

Disclaimer: Opinions expressed in commentary e do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in