Low and negative yields mean that no one has the confidence to invest in real capital projects. Investors would much rather lose money over a 10-year horizon than invest in building dams, repairing pipes, creating better grids, starting new businesses, etc. A new monetary order must replace the existing one, and as soon as possible. It will likely be one that China is determined to dominate this time around.

The Bank of Ireland is set to become the first domestic financial institution to pass on the ECB’s negative rates to customers for placing their money on deposit with the bank. I have learned that the Bank of Ireland, which is 14% owned by the State, has informed its large corporate and institutional customers that it plans to charge them a negative rate of -0.1% for deposits of €10 million or more starting in October 2016.

Ulster Bank, which is owned by UK lender Royal Bank of Scotland, has already introduced negative interest rates for a small number of large corporate clients. Ulster Bank has products priced off the back of Euribor, a European interbank lending rate, which is at an all-time low and had turned negative last year. These interest fees being charged by the bank do not apply to SMEs or to personal customers.

Additionally, as Bloomberg reports, The Royal Bank of Scotland, which is Great Britain’s largest taxpayer-owned lender, stated that some of its biggest trading clients must pay interest on collateral as a consequence of low central bank interest rates. Some of the bank’s institutional clients will need to pay interest on funds pledged as collateral when trading futures contracts. The changes for sterling and euro futures and options trading will probably affect about 60 large clients. “Due to the sustained low interest rate environment, RBS will now be passing the cost of holding such deposits onto a limited number of our institutional clients,” the bank said in the statement. RBS said it had previously applied a zero percent floor to the overnight rate charged for collateral required by clearinghouses for future traders.

This is the first indication that the Bank of England’s decision to cut rates to historic lows is forcing lenders to collect negative interest from deposit holders.

Ironically, unlike Europe, the U.K.’s rates are (still) positive, even though the BOE recently cut the interest rate to an all-time low of 0.25% as it unveiled that it would resume monetizing government and corporate bonds. It may soon cut rates to negatives.

While the RBS move affects only a subset of business customers, some lenders in Europe, where both the European Central Bank and the Swiss National Bank have kept interest rates below zero for months, have been charging a wider array of customers in order to hold their deposits.

“What you’re seeing is there have been a few banks in Germany and a couple in Switzerland which have started to charge for deposits; importantly, it’s to corporate customers, or very wealthy people,” said Andrew Lowe, an analyst at Berenberg, as quoted by the FT. “You are likely to see the UK banks follow suit, in particular if rates fall further,” he added. “Everything that applies to Europe applies to UK banks as well.

After a certain period of time passes, it will also apply to less than “very wealthy people.”

The RBS charges would apply to clients who trade futures and options and, therefore, hold cash on deposit as collateral. He said customers were being encouraged to put their cash into bonds, instead, so as to avoid the cost.

Conclusion:

In short, customers who hold money at banks are slowly beginning to get squeezed and charged fees. What does this mean? To me, I feel it’s going to be negative on the banks and their share prices as investor slowly move away from those banks and/or spread their money to other asset classes to avoid paying interest to a bank to hold their money.

Banks have it really bad, if you ask me. They are not making much interest on the capital they hold for clients, and charging customers to hold money is a sure way to lose some of their biggest clients and income.

The financial sector has never recovered from the 2008-09 bear market in stocks, and with, potentially, another bear market just around the corner, bank stocks could be in for a massive bout of selling.

Where could a large chunk of investors’ capital flow? Precious metals is one of the places, though many other greater opportunities are slowly unfolding, and its just a matter of time before we take advantage of them.

Join Me at www.TheGoldAndOilGuy.com and see my exact trades and prosper during these interesting times.

Chris Vermeulen

Bob Moriarty
Archives
Aug 24, 2016

The world’s financial system died in mid-September of 2008. Since then it has become something out of Night of the Living Dead, in other words, a zombie. Central banks around the world came up with an interesting new concept that you could somehow borrow and spend your way to prosperity. Great concept but it seems to have failed utterly.

We have a zombie financial system now and the world owes more than at any point in history. Most governments are functionally bankrupt yet they want to borrow and spend more in the hopes that if it didn’t work before, maybe it will somehow work if they do more of it. Our grandchildren and their children are going to be paying for this monumental stupidity.

In my opinion we began a correction in gold and silver last week. As Tom McClellan has observed a number of times, full moons tend to mark either reversals in the metals or acceleration in the direction they were moving before the full moon. On the 18th of August we had a full moon and I think silver and gold have turned down. I’d love to see a full-blown correction. The boat is getting way too crowded with everyone on the same side of the boat.

Gold shares, silver and gold are leading the correction lower. The XAU, the HUI, silver and gold all set at least a short-term high in the first week of August. This gold rally is thirty weeks old and getting pretty long in the tooth. All things change.

I’ve sold a couple of thousand copies of my book. Many readers feel that the chapter on taking a profit is the single most valuable chapter in the book. Lots of my readers have made hundreds of percent on gold and silver shares. Have a plan. If we are going into a massive correction, it will be the single best time in your lifetime to invest in resource shares. But the XAU and HUI could be down 40% or more. Have a plan. Either sit on your hands until it ends and ride it out or take some money off the table. Now would be a good time to be cashed up. Remember, nobody ever went broke taking a profit.

I follow a lot of different indicators to give me a feel of where we are. One is the ratio of the number of ounces of silver it takes to buy one ounce of gold. When I was writing Nobody Knows Anything the ratio was about 83-1 and I talked about that being an especially safe trade.

Since anyone with any “cents” is holding some physical gold or silver or both, if the ratio goes above 80-1 you should sell your gold and buy silver. That ratio dropped to below 66-1 in late July, early August before heading higher. As I write, the ratio has climbed to about 71-1. That is an important sign of stress in the financial system. If it goes above 80-1 the system will be on the verge of an implosion.

We have flocks of black swans circling and no one knows which will land first.

I was warning of the dangers of derivatives as early as January of 2002. After the financial system collapsed in 2008 I followed up with another good discussion of derivatives. In 2002 derivatives were about $100 trillion. By late 2008 they were nearing $700 trillion. Today they are about $500 trillion.

As a measure of just how important gold is to the world financial system in comparison to interest rates, interest rate derivatives are about 1300 times greater than gold derivatives. We have a lot of me-too parrot websites talking about manipulation and conspiracies but logic tells us Central Banks worry about interest rates and couldn’t care less about the price of gold.

Central Banks didn’t care when gold was $252 in 1999 and they didn’t care when someone suppressed gold all the way to $1923 in September of 2011. It’s way too small a market.

There is something Central Banks do worry about and that’s the US Treasury Bond market. The US T-Bond market looks as if it has made a blow-off top in early July. In our zombie financial system, last week Greek bonds were paying a lower interest rate then US Bonds. That’s insane but no more insane than something that has never happened in world history. We have $13 trillion in bonds world wide with a negative interest rate. In 5000 years such a thing has never taken place. If it was such a great idea, you would think that it would have occurred to someone somewhere before. It hadn’t.

I read something last week that made me realize how important the $500 trillion in derivatives is today. There are nearly 5,000 ETFs. That’s totally nuts. I asked one of the most sophisticated investors I know how many ETFs he thought there were in the world. He said, maybe 100. That’s not even close.

By now even the BIS is beginning to figure out that the counterparty risk of derivatives is uncontrollable. Basically when the system starts to come apart as we all know it will, counterparty risk is going to go through the roof and we will have a series of cascading defaults. All of the ETFs are going to fail. All 5,000 of them. There are too many to save.

Here’s what that means for ordinary investors. Perhaps you are listening to George Soros talk about shorting the S&P and going long gold. Or you would follow Lord Rothschild into gold and out of ordinary shares. For months Stanley Druckenmiller has been telling people to get out of shares and into gold. So you go buy an ETF that is betting on being short the S+P and you buy a pro-gold ETF. The S+P goes down 1000 points in a week as gold goes up $800.

You sit back smoking a big fat stogie and sipping on a dry martini with just a twist of lemon and think about how rich you are. But when you contact your broker, you find that you are penniless. You have lost every cent you invested. With 5,000 ETFs and $500 trillion in derivatives, when the system blows and it will very soon, the risk is no longer market risk. It’s counterparty risk.

The counterparties to your S+P short and gold long can’t pay up. Your money goes to money heaven and your wife runs off with the tennis instructor. Even your dog hates you. You forgot about the real risk of ETFs and derivatives.

If you can remember back to the dog days of 1997 when we had the Asian Financial Crisis, commodities were going limit up and limit down daily. Market risk morphed into counterparty risk. Even though investors were legally responsible for their margins, the prices were moving so rapidly that the back office of Refco/Lind Waldock couldn’t keep up. The guy runningRefco fudged the books for eight years until an auditor picked up on the $430 million in losses dating back to 1997 and 1998. When the counterparty can’t pay up, the clearing house is on the hook.

I don’t even want to get into the insanity of the US presidential election. We have a choice between full-blown corruption and a fool. The FBI just announced there were another 14,900 emails that Hillary forgot to turn over. And Donald Trump is learning that maybe you should keep your mouth shut about illegal immigrants when it appears your wife was working on a tourist visa when she first came to America. And for the few Americans who still trust the news media, their constant unbridled attacks on Donald Trump will soon show just how much the mainstream media can be trusted to be “fair and unbiased.”

When empires are about to fail, war looks like a great alternative to fool the masses as to what is really going on. Obama and the Congressional/Military/Industrial complex have been pushing both Russia and China closer to war for years. One day soon someone is going to feel as if they have been pushed too far.

We just thought the Pentagon was corrupt back in 2001 when on September 10, 2001 it was revealed that the Pentagon couldn’t account for $2.3 trillion that they had spent. But recently it came out that in fiscal 2015 the Pentagon couldn’t account for $6.5 trillion. In the same way that 911 made a great cover up for the missing $2.3 trillion, what will the Pentagon invent to hide the missing $6.5 trillion? War is one alternative.

And while that may sound goofy, it sounds goofy to me and I wrote it, theGerman government is discussing how to tell their citizens to stock 10 days food and 5 days water in case of an attack or catastrophe. Perhaps someone knows something that we don’t.

We are in for interesting times between now and the election. The Chinese think interesting times is a curse. They are probably right.

1. In the gold market, all analytical eyes should be on the Jackson Hole central banking conference.  On Friday, Janet Yellen makes her speech.
2. Please click here now .  Double-click to enlarge this eight hour bars gold chart.
3. Janet’s speech could be the catalyst that takes gold down to my $1310 target, and catapults it from there to $1392.

4. Gold is trading in a triangle pattern that many technicians are watching, but fundamentals make charts; statements from key central bankers could easily take gold slightly lower before the “real move” higher begins.
5. Please click here now .  Double-click to enlarge.  Technically, silver looks very healthy.
6. Yesterday’s price decline may have been uncomfortable for price enthusiasts, but it did create a nice drifting rectangle pattern.  That strengthened the overall technical situation.
7. With these types of price patterns, there’s roughly a 67% chance of an upside breakout.

8. Please click here now .  US dollar bulls don’t have many powerful friends right now, and with good reason.
9. Next, please click here now .  Double-click to enlarge.  The US dollar is the risk-on world’s flagship entity, and against the safe haven yen it looks like an ongoing train wreck.
10. Please click here now .  Influential Morgan Stanley strategist Hans Redeker highlights the truly horrifying growth in dollar-denominated debt held by European corporations.  Rate hikes are not good news for those corporations, to put it mildly.

11. Also, one of my key fundamentalist associates believes that Janet Yellen has some kind of off-book arrangement with the PBOBC.
12. Essentially, the PBOC agrees not to unveil a hard devaluation for the yuan, and in return Janet agrees to raise rates only about once a year.

13. I don’t know if such an agreement is in place or not, but it’s clear that gold soared as a risk-off trade after Janet’s first rate hike, and most of that upwards momentum faded when she began hinting in February that further hikes may be delayed.
14. I’ll also categorically state that a big yuan devaluation could be a trigger event for a dramatic US stock market crash, and perhaps even a bond market crash.
15. Further, it’s not just Janet Yellen that could begin a new down leg for the already-smashed dollar.  Statements from the ECB or the BOJ also bear watching carefully.
16. On that note, please click here now .  Clearly, a bet on the dollar is a bet against gold, and against the top FOREX players at JP Morgan and Morgan Stanley.
17. Gold is well-supported by a myriad of positive factors, including the price of oil.  Please click here now .  Double click to enlarge this daily oil chart.
18. I sold some oil last week and rebought this morning.  Goldman analysts refer to the rally as“shaky”.  I think that’s a fair assessment, but if oil trades above the June highs in the $53 area, I’ll dare to suggest they will have a much more positive view.
19. Please click here now .  The love trade has been quiet in 2016, but maybe it’s not as quiet as it appears.
20. When the Indian government unveiled its repressive import duty and the 80-20 rule, I was a strong critic and argued that criminal elements within the government stood to benefit, while hundreds of thousands of jewellery workers were sent to the bread line.
21. Some Indian refiners and large corporate jewellers thought the duty would benefit them by wiping out their smaller competitors, but it’s clear that so much gold is being smuggled into India that the refiners and corporate jewellers are becoming unnecessary.  The smugglers are now the “lords” of the Indian gold market.
22. Nobody knows what the actual amount of gold coming into India is, other than the smugglers, but the tonnage is gargantuan, and it does add support to the gold price.
23. T-bonds have become a risk-on market now, used by money managers for capital gains.  Top hedge fund managers call the stock market a death trap.  Real estate would be crushed by further rate hikes.  Clearly, gold stands alone as the ultimate win-win asset in the eyes of many top analysts.  Love trade demand is decent.  Fear trade demand is superb.  Supply is unchanged.
24. Please click here now . Double-click to enlarge.  GDX is trading sideways in a rough $28 – $32 range.  All eyes in the Western gold community should be watching Janet at Jackson Hole on Friday, and all hands should be on the gold stocks buy button!

Thanks!

Cheers

Stewart Thomson
https://www.gracelandupdates.com
stewart@gracelandupdates.com

Full Article: Gold: All Eyes On Jackson Hole