Gold To Protect As Bank ‘Holidays’, ATM and Deposit Withdrawal Restrictions and Capital Controls Loom
Gold edged up again today as Spain’s 10 year bond yield’s hit a euro-area high nearing the 7% level, which led investors to question Madrid’s access to the bond markets. Italy’s bond sale is scheduled for Thursday.
While the gold price has not surged as expected and appears to be consolidating near the $1,600/oz level (€1,300/oz and £1,000/oz), there has been a definite increase in demand in recent days , particularly this week and this morning, as the crisis is again leading to safe haven demand – particularly from European buyers.
There is a slow but creeping realisation that this crisis is soon to escalate and that financial contagion with risks to bank deposits (often guaranteed by insolvent states) and payment systems. Indeed, the entire modern financial system is at risk.
There are silent runs on banks in Spain, Greece and Italy. The Bank of Italy authorized the suspension of payments by Bank Network Investments Spa (BNI) without communicating anything to depositors. The BNI, a large Italian bank, suspended operations and clients with bank accounts could not write checks, pay bills, make mortgage payments, use ATMs or debit and credit cards.
The European Union is making preparations to contain the effects of panic if Greece was to exit from the Euro. Among the measures they are considering imposing are a limit on the amount of money that can be withdrawn from cashpoints or ATMS, imposing border checks and introducing currency controls to stop a flight of capital from countries.
As well as limiting cash withdrawals and imposing capital controls, they have discussed suspending the Schengen Agreement, which allows for visa-free travel among 26 countries, including most of the EU, though not Britain and Ireland.