Notes From Underground: Exchange Controls Building a Stairway to Haven?

There’s talk abound about the possibility of exchange controls. The ability to slow the inflow and outflow of funds is being discussed from Greece to Germany and Switzerland. It is no secret that many citizens in the peripheries are moving EUROS out of their domestic banks and into German, Swiss ans British domiciled entities. The German paper HANDELSBLATT had an article during the weekend suggesting that the SNB and Swiss government are readying a plan to undertake exchange controls and a true negative interest rate regime. The overly strong SWISS FRANC has placed a great deal of stress on the Swiss economy and the Swiss authorities want to head off any demand for FRANCS if the EURO were to fail.

As money flees the peripheries, that puts more pressure on the domestic banks in the pariah money centers to raise funds from their own central banks. The pressure ultimately makes it way back to the ECB as the individual banks receive their funding from the ECB and EFSF. Soon the Greek government will have to place restrictions on the OUTFLOW of EUROS from its banks to the stronger money centers, especially Frankfurt. The same process is ongoing in Italy and Spain as its citizens are moving to safety in the stronger core-based banking institutions.

When EXCHANGE CONTROLS ARE IMPLEMENTED IT WILL BE A POSITIVE FOR GOLD AS IT WILL REPLACE EURO DEPOSITS AS THE ULTIMATE STORE OF VALUE. CURRENTLY, GOLD IS FAILING TO RALLY. I HAVE DISCUSSED THIS A BEING THE RESULT OF A LARGE HOLDER OF GOLD LIQUIDATING A MASSIVE POSITION TO RAISE CASH FOR POSSIBLE SHORT-TERM LIQUIDITY NEEDS.

It seems that another reason for GOLD’S recent lackluster performance may be due to many banks in EUROPE increasing their GOLD leasing programs, which have put GOLD LEASE PRICES INTO NEGATIVE TERRITORY. THE NEED TO RAISE DOLLARS HAS LED TO MANY GOLD HOLDERS SWAPPING THEIR GOLD FOR DOLLARS. THE RESULT IS NOT GOLD SALES BY THE LESSOR BUT JUST A SHORT TERM FINANCING ARRANGEMENT TO RAISE LIQUIDITY FOR IMMEDIATE NEEDS. (IT IS THE ULTIMATE PAWNING OF THE FAMILY SILVER.) There is so much GOLD for lease that borrowers can attain it and get paid for doing so, which removes potential buyers from the market.

A potential need for GOLD is averted by pushing the price higher and the borrower gets paid. This is just another element in the BALANCE SHEET RECESSION PLAGUING THE BANKS OF EUROPE. THE GOLD LEASING FACTOR IS SOMETHING TO WATCH FOR AN INDICATION OF CONTINUED BANK STRESS. Also the GOLD/SILVER SHOULD TURN TO SILVER’S FAVOR IF THIS CONTINUES TO HOLD UP FOR EUROPEAN FINANCING NEEDS.

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16 Responses to “Notes From Underground: Exchange Controls Building a Stairway to Haven?”

  1. Michael Greenberg Says:

    Regarding gold, last week China Steel said Brazil’s Vale agreed to cut its price of iron ore shipments for delivery in the 4th quarter by 20 to 25%. That is an extraordinary price decline for an important commodity. I’d be a little wary if I were long gold.

  2. asherz Says:

    Iron ore price cuts (deflationary) would impact gold prices if it was only a commodity. However it is becoming a primary currency and store of value. I’d be wary of having all your funds in fiat currencies that have unlimited quantity possibilities. Think Weimar and Argentina.
    The lackluster price performance in gold is because of the intervention of the Fed and other central banks supressing the price of paper gold. When that game ends as it must, gold will blast off and get to its true market price. (most readers will poo-poo this reason. Time will tell.)

  3. arthur Says:

    Interesting, adding Andres Drobny “gold standard, the Euro, Default, Deflation, and Hyperinflation”
    http://fabiusmaximus.wordpress.com/2011/12/12/31995/

  4. Monday Morning Breakfast Links | Points and Figures Says:

    […] the Europeans implement exchange controls, buy gold($GLD, […]

  5. Notes From Underground: Exchange Controls Building a Stairway to Haven? « Jim Sinclair's Mineset Says:

    […] More… […]

  6. yra Says:

    Arthur–nice add on the the drobny piece–I have great respect for Andres and of course Steve–and Steve Drobny and Andres are not related

  7. yra Says:

    Michael–yes you are right on the iron prices as that reflects the deflationary environment that is enhanced by the deleveraging in Europe—but will the world outside of germany embrace a deflationary impact of the massive debt overhang—if so then GOLD will fall further if not–lookout

  8. dumbmoney Says:

    So, the banks are leasing gold? I’m sure this is another re-hypothecate scheme – “I leased out the gold – right, the gold we are holding. I know it isn’t OURS, but THEY will never find out…”

  9. Martin Says:

    What is the CB’s greatest fear ?? A RUN !! Latvia as I write and many others banks to come. Gold must not be allowed to ever be anything other than a risky investment , hence the ridiculous takedowns. I have NO friends who own gold even though they have money and have been told ( by me) since gold $500 to buy. It was then and it is still today a RISKY investment to Americans, no matter that the last ten years rise has proven gold to be anything but.
    The Cartel of CB’s have succeeded in trashing the only Constitutionally approved form of Money. Sad but true.

  10. yra Says:

    Dumbmoney—I was thinking that very thing.The rehypothecation issue is the Lehman problem all over again—and they are receiving less then nothing for the effort and run counter party risk.Iwonder what their VAR models say about that—-when will they ever learn,when will they ever learn.But i guess when you play with OPM you don’t ever have to learn

  11. Robert Burt Says:

    We are not going to make any headway until we realize that these difficulties were caused by persons in positions of power expending wealth that is not theirs and that such persons are never to be trusted under any circumstance.

  12. BEACH Says:

    Simply consider the value of printed instruments versus Gold in HISTORY and read The Creature from Jekyll Island and Aftershock … this whole mess was predicted for those of us whom read a long time ago.

  13. Greg Says:

    Yra,

    Do you know if the Eurocrats have any legal mechanism to deny England access to the mainland’s markets that would not be subject to a English veto? Nothing I’ve read suggests so and it seems to me the wisdom of Cameron’s move is highly (exclusively?) based on this variable.

    GBP/EUR cross seems to be performing well. Does the UK get to say “I told you so” again?

  14. BEACH Says:

    The Euro (for what its worth) will exchange for the pound … plan on it … same for the dollar … PM is not isolating, just refusing to play an ill concieved game.

    Heck, why not just cash in everything and buy Greek or French bonds …. good as gold right?

  15. yra Says:

    Greg—the one thing about Europe is there is no rules.Everything gets made up as you go along .Some European technocrat said —the law–for our friends we interpret it and for our enemies we enforce it–think about that.

  16. Greg Says:

    Yra – Thanks for the reminder; always try to keep that in the back of my head as it is. I guess its a little difficult to predict the actions of those capable of doing anything, isn’t it? *going back to finals*

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