Deposit Over Loan Ratio

The deposits keep increasing, but the loans aren't. This doesn't look healthy for banks.

Western Central Banks Buying Gold

Who in the Eurozone is buying gold? Currently there isn't too much activity...

France is buying 1 tonne per year.

Germany is selling 5 tonnes per year.

 

Greece is buying 0.5 tonne per year.

Hungary bought 30 tonnes.

Poland bought 100 tonnes.

Western Central Banks Are Buying Gold

Bullionstar reported that the Central Bank Gold Agreement will end in September 2019.

I cannot stress enough how important this is. Here is the press release from the ECB. European countries will now be able to buy gold again.

Western central banks have not been buying gold since 1966. Since the crisis in 2008 started, the eastern central banks have been buying gold but the western central bank purchases were capped. You can see in this chart how eagerly these western central banks are to start buying gold. Finally, in September 2019, they will be able to buy gold again, especially when gold is now a Tier 1 monetary asset (Basel III). They will scramble to buy it.

I expect gold prices to move up after September 2019, especially when the ECB and the FED are resorting to QE again after September 2019.

Central banks are buying gold

Since 2008, the east has been buying gold and the west has stopped selling gold.

Correlation: Total Central Bank Balance Sheet Vs. Gold Price

I once said there was a correlation between the Federal Reserve balance sheet and the gold price. As a result there is also a correlation between M1 and the gold price. This is still the case.

But gold is universal, so you should look at the balance sheets of every central bank in the world.

Chart 1: Total Central Bank Assets

Even though the Federal Reserve balance sheet has been going up due to QE3, there is one central bank that did the opposite recently. That dreaded central bank is the ECB.

As you can see on Chart 2, the ECB has shrinked its balance sheet due to the repayment of LTRO. European banks paid off 137 billion euro on 25 January 2013. So you can see the dip here.

Chart 2: ECB Assets

That repayment of LTRO coincided with a rise in the EUR/USD (Chart 3).

Chart 3: EUR/USD

And a drop in gold price in euros.

Chart 4: Gold Price in Euro

So forget complacency in the Eurozone as reason for the dropping gold price. Just look at the balance sheet of the ECB as primary reason.

We may not forget that the ECB has one of the largest balance sheet in the world (after China) and we need to monitor their balance sheet even more than the Federal Reserve balance sheet. Japan should be monitored closely too.

You can monitor the ECB balance sheet here.

For the Japanese balance sheet you must google it.

Interconnectivity of Banks

I just love this figure that gives the interconnectivity of banks.

If J.P. Morgan (JPM) and Bank of America (BAC) fail, the entire system fails. That means that they will never fail, as the Federal Reserve will always protect them.

Figure 1: Interconnectivity of Banks

The "Hollande" Effect

Investors are speculating on what will happen when François Hollande wins the French elections this Sunday 06 May 2012. Many things can occur, please go here to read about the consequences.

Election results