$300 Trillion In Derivatives Losses To Lead Gold’s Rebound

Today Egon von Greyerz warned King World News that the global derivatives market has already suffered a staggering $300 trillion of losses.  These massive derivatives losses, which are being hidden from the public, will help lead the rebound in gold as it begins the next leg of its bull market.  Below is what Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this powerful interview.

Greyerz:  “A few years ago when the problems in Greece started, it was found that the Goldman Sachs had helped them to hide the real truth of their economy by a major derivatives positions.

  • Dow Jones 30,000 Trigger Leaked by 27-Year-Old Stock Research Firm CLICK HERE
  • The Inevitable: Dow Jones 30,000 CLICK HERE

 

Now we’ve found out that Italy has done exactly the same thing.  They took out derivatives in order to meet euro criteria back in the late 1990s.  They had a total of $31 billion of derivatives and now they are finding that at least $8 billion of that is worthless.  That’s about 30% of the entire position….

 

“This just illustrates what I’ve been saying time and time again, that a major part of the over one quadrillion dollars of derivatives currently held in the financial world is worthless.  Here you have a typical position that a government is taking, $31 billion of derivatives, and 30% is worthless.

 

If you then overlay that loss into the total amount of global derivatives, the loss would be a staggering $300 trillion.  It would not surprise me if $300 trillion is in fact very close to the total losses on global derivatives.  If that is the case it means that no counterparty can cover those type of losses, so in reality the entire financial system is bankrupt.

 

This is why the world will witness money printing on an unprecedented scale going forward, despite misinformation and propaganda about “tapering of QE.”  So central planners are just hiding the truth and lying to the public.

 

If we continue to look at Italy, 160 corporations are in “special crisis administration.”  That’s 160 major companies in Italy alone are in serious financial trouble.  But Italy has a stunning debt to GDP ratio of 238%.  In reality it’s probably a lot higher than 238% because of the derivatives losses which have been used to conceal the truth about what is really taking place.

 

But what this means is we can’t trust any government figures.  This is why Draghi recently said, “There is still downside risk.”  Of course there is downside risk, and that risk is massive.  If we look at the European banking system, it’s terminal.  People can never repay their debts to those banks, and of course the banks have continued to borrow money from the ECB since 2008.  Of all of the bad debts these banks have, remember that nothing has been written off or even written down so far.

 

And of course the central banks have bought worthless debts directly from the banks in Europe.  The ECB over the last 11 years has grown its balance sheet over 200%.  The Fed’s balance sheet has grown 400%.  The Chinese central bank has grown its balance sheet 660%, and the Bank of England 800%.  England’s balance sheet has gone from $2 trillion to $9 trillion, and of course that debt can never be repaid.

 

Not only are the central banks highly leveraged, but so are the commercial banks.  France is also in a mess.  French bank Credit Agricole has a remarkable 46 times leverage!  So if there is 2% bad debt, the capital of that bank is wiped out.  Another French bank is using 40 times leverage.  Credit Suisse, if you use Basel III rules, also has 40 times leverage.  Deutsche Bank has 30 times leverage.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/28_$300_Trillion_In_Derivatives_Losses_To_Lead_Golds_Rebound.html

In Just Two Charts, You’ll Understand Why Gold Is Crashing

It’s shaping up to be another rough day for fans of precious metals, especially silver.

More broadly, silver and gold have been getting poleaxed in recent weeks and months.

How come?

  • Dow Jones 30,000 Trigger Leaked by 27-Year-Old Stock Research Firm CLICK HERE
  • The Inevitable: Dow Jones 30,000 CLICK HERE

Sam Ro earlier posted a chart from Credit Suisse, which explains that there are two driving factors.

One is that the fear of Armageddon is fading (which they express by showing declining sovereign debt yields in Spain and Italy).

The other is that interest rates are normalizing, and coming out of their ultra-low crisis level. Ultra-low interest rates diminish the appeal of holding currency, and boost the appeal of gold. Reverse that, and the appeal of gold goes away.

Those two charts explain it all:

Source: http://www.businessinsider.com/why-gold-is-crashing-2013-5

Gold Bullion: 4 Fundamental Facts

WHEN VOLATILITY prevails in the gold market, I love seeing so many different opinions because it promotes critical thinking and healthy markets, writes Frank Holmes, CEO and chief investment officer of US Global Investors.

But because gold is unlike any other commodity, many perspectives can be extreme, such as “goldenfreudes” who take pleasure in gold bugs’ pain.

I continue to persuade readers to take a balanced and thoughtful approach to the yellow metal. With this in mind, here are four facts to remember about gold that should help neutralize those extreme bullish and bearish views.

  • Dow Jones 30,000 Trigger Leaked by 27-Year-Old Stock Research Firm CLICK HERE
  • The Inevitable: Dow Jones 30,000 CLICK HERE

1. You can’t print more gold

The Federal Reserve continues to print fresh, crisp stacks of US Dollars amounting to $85 billion every month, driving up the balance sheet to almost $3 trillion Dollars. If Ben Bernanke continues churning out Dollars at this rate, by 2016, the balance sheet will more than double to $7 trillion Dollars.

And research has found that the price of gold moves in near-lockstep to each increase in the Fed’s balance sheet.

Even with the incredible two-day drop in gold prices, US Global portfolio manager Ralph Aldis calculated that the correlation between the rise in gold and the US balance sheet is 0.96. Perfect correlations of 1 are extremely rare in markets, but gold and the balance sheet have moved in sync with each other since 1999, before gold‘s bull run began.

2. Gold is viewed as a currency by central bankers

As gold was falling on April 15, Carl Quintanilla from CNBC asked me what I thought about how investors viewed currencies. I feel investors should look at how central banks around the world are viewing their own reserves. Although Cyprus and Italy were possibly forced to sell their gold holdings to pay down debts, take a look at the actions of emerging countries central bankers who are scooping up gold.

The World Gold Council (WGC) reported that in 2012, central banks purchased 535 tons when only a few years ago central banks were net sellers of gold. And it’s important to keep in mind that these central banks love these corrections, as they can purchase gold at cheaper prices.

Russia bought 75 tons, bringing its gold holdings to the seventh largest in the world, with about 1,000 tons. Last year, Brazil, Paraguay and Mexico purchased gold, as did South Korea, the Philippines and Iraq.

Turkey is another country that has been building reserves, though not from purchases. Rather the WGC says its growing gold reserves “reflect the increasing role that gold plays more broadly in the Turkish financial system as these reserves are substantially pledged from commercial banks as part of their required reserves.”

While the tonnage is only a fraction of the overall gold market, it is widely acknowledged that central banks are building their supplies of gold as a means to diversify their holdings away from the US Dollar and the Euro. As a percent of total reserves, many of these emerging countries mentioned above own very little gold. In fact, Pierre Lassonde, chairman of Franco-Nevada, has noted that even if emerging market central banks wanted to increase their gold reserves to 15 percent of total reserves, they’d have to buy 1,000 tons every year for the next 17 years!

3. A lack of love from the Love Trade is affecting fundamentals

Too many people focus on the Fear Trade, which is when investors buy gold coins or a gold ETF out of a fear of the fallout that may result from governments’ rising debt levels and weakening currencies.

The Love Trade, on the other hand, is the buying of gold out of an enduring love for gold. Two emerging countries that make up almost half of gold demand—China and India—have had a long relationship with the precious metal that is intertwined with their culture, religion and economy. With half of the world’s population buying gold for their friends and family, it’s important to put into context what is happening in their countries.

It was announced this week that China‘s income growth slowed in the first quarter of 2013, with urban household disposable income rising only 6.7 percent on a year-over-year basis. This is down from 9.8 percent in the first quarter of 2012, and “the slowest pace since 2001,” says Sinology’s Andy Rothman.

This is very important to gold, as China‘s income growth has been shown to be highly correlated to the price of the precious metal over the past decade.

China‘s weaker GDP also disappointed gold investors, but I believe this is only a temporary setback. It’s only a matter of how fast China will move to stimulate the economy, since this is a key to global growth.

In India, gold consumption has been hurt by both a weak rupee and government taxes on imports. In the first quarter of 2013 alone, gold imports declined 24 percent, according to Mineweb.

4. Corrections happen, but have historically offered buying opportunities

As of mid-April, the gold price on a year-over-year percentage change basis registered a -2.6 standard deviation. While minor corrections in the gold price happen frequently, a move this severe has never occurred before over the previous 2,610 trading days.

With gold‘s standard deviation drastically below the “buy signal” blue band, we consider the yellow metal to be in an extremely oversold position on a 12-month basis. The probability that gold will move higher over the next several months is high.

Source: http://goldnews.bullionvault.com/gold-bullion-4-fundamental-facts-051520135