In our column last week we were warning you about Deutsche Bank’s problems and potential issues with its derivatives portfolio and its capital structure. The story continued to unfold in the past week and Deutsche Bank was pushed into a corner as more and more investors started to lose confidence in the bank. A plan to buy back $5.4B in debt in a desperate move to reassure the capital markets. In fact, Deutsche’s move is so desperate it will even start buying back debt that was issued less than six weeks ago.
Where did we see that before? Oh, yes, of course. Lehman Brothers. When the shit was hitting the fan, Lehman continued to buy (back) assets instead of keeping the cash in-house to have a financial buffer to counter any potential liquidity issue.
Well, the financial world definitely wasn’t assured by Deutsche Bank’s reassurances, and this effect was predominantly felt in the gold market as the gold price jumped to a multi-year high at in excess of $1264/oz. That’s very nice, but what’s even more interesting is the fact the buying pressure actually started on Thursday, right at the moment the Hong Kong Stock Exchange opened.
Source: kitco.com
This is very interesting as the Chinese buyers haven’t been willing to shown their eagerness to get their hands on gold, and a strong gold price appreciation during the Hong Kong trading hours was quite remarkable. We’re looking forward to see how the gold price will behave on Monday, as the US and Canadian exchanges will be closed. Will there be another coup coming from Asia?
Let’s have a look how strong the outbreak of the gold price was, and how the Hong Kong trading day played a pivotal role on Thursday.
Source: stockcharts.com
The moment the gold price broke through the 200 day moving average, all bets were off and several traders correctly recognized this could potentially be a real game changed. And indeed. Just 4 trading days after breaking through the 200MA, the gold price already touched the $1200oz-level, where it stayed at for approximately 3 days without being able to break through this symbolical level (yellow rectangle). Enter the scene: Hong Kong traders (orange arrow). In just one move they lifted the gold price above $1200/oz overnight, taking the Western traders by surprise, who quickly had to unwind their short positions, further strengthening the spike in the gold price to $1264/oz.
Source: Ibidem
Looking at the multi-year chart, it’s now pretty obvious the downtrend has been broken, and gold is now swiftly moving higher. Not only does this confirm the theoretical and technical pattern we saw after the 200MA was captured, there also seems to be some more room to run. The RSI, for instance, is still in the ‘safe’ zone, whilst the Money Flow Index (the yellow circle below the chart) also hasn’t reached alarming levels just yet.
Additionally, the gold/oil ratio has posted a new record as well. The previous record of 41 barrels of oil per ounce of gold was in 1892, but the eruption of the current crisis has now crushed that ‘record’. This is also a very important sign to prove the volatility of the markets is still exceptionally high. As gold and oil are moving in the opposite directions, the markets are indicating they are expecting to see more problems in the near future.
Source: Deutsche Bank via iii.co.uk
We remain unsure Janet Yellen and Mario Draghi are the right captains to save us from this rollercoaster called the ‘world economy’, and we hope you have started to protect yourself and your assets!
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