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Old 01-30-2013, 08:44 AM   #1
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Question Delay of Basel III implemt. forces Swiss banks to go phyiscal?

This is going to be a quite technical post, sorry for that.

As previously discussed ( http://www.pmbug.com/forum/f2/gold-c...1-status-1056/ ) , Basel III would make gold Tier1 capital (low risk), therefore increasing incentives for banks to hold physical gold (the article below gets that wrong). The implementation of Basel III has been delayed for several years, probably due to lobbying by the megabanks. Switzerland has imposed even tighter capital rules on her own, but they don't say anything about gold.
This takes us to the following FT article which states that the Swiss megabanks UBS and CS are trying to make their clients to change UNallocated gold (and silver) accounts into allocated (segregated) accounts. As you probably know, Switzerland is the pm trading hub for continental Europe and even parts of the middle East. Swiss banks have traditionally offered UNallocated paper accounts to clients. These accounts are structured like LBMA accounts or COMEX futures contracts. They have a fractional reserve backing. Noboby knows what fraction of these accounts is physically backed, but in case of the LBMA it's about 1 phys for 100 papers, ie 1%. All this paper is now on the books of the banks. The clients only have a paper claim against them. Due to the delay of Basel III, the pm portion of the UBS and CS balance sheets is considered too risky. Regulators are pushing for smaller and less "risky" balance sheets. That's why Swiss banks are encouraging their clients to take physical delivery into allocated accounts. We're not talking retail here, we're talking large institutions.
The consequences should be obvious: There will be a lot of physical buying.
Let's wait and see how the story evolves over time

Here's the article out of FT, with the obvious spin in the header and with a quite obvious advertising attempt to move the gold to London (it's an FT article afterall):
Quote :
Swiss Banks Lose Old Taste for Gold
FT
Published: Tuesday, 29 Jan 2013 | 9:33 PM ET
By: Jack Farchy

The wealthy have for centuries stashed their gold in Swiss vaults. But Swiss bankers are now reluctant to accept the world's bullion in the same old way, as they seek to reduce the size of their balance sheets.

UBS and Credit Suisse, which dominate the powerful Zurich-based physical gold market, have raised the fees they charge for holding the precious metal, according to clients and people familiar with the banks.

The move is an attempt to persuade their biggest clients - including other banks, hedge funds and institutional investors - to take direct ownership of their gold in so-called "allocated" accounts, with the bank simply acting as a custodian.

Under more common "unallocated" gold accounts, depositors' bullion appears on the banks' balance sheets, forcing them to increase their capital reserves. Like their global peers, UBS and Credit Suisse are under pressure from regulators to reduce capital-intensive activities ahead of the introduction of new Basel III global banking rules.

People familiar with the banks' thinking said the move to raise fees was part of a broader attempt to reduce the size of their balance sheets. "When it's on balance sheet it does create costs," a person with knowledge of the banks' strategy said. "If there's an additional cost in terms of liquidity, it should be shown transparently."

Fees vary for different clients, and traders said that the increase had not been uniform but that it was generally in the order of about 20 per cent. Vaulting fees are typically about 0.05-0.1 per cent of the value of the gold.

Credit Suisse declined to comment on the fee hikes, but confirmed that it was "adjusting its charges for precious metal accounts for financial institutions". UBS declined comment.

Higher vault fees are the latest sign of strain in Switzerland's banking industry, as investors in search of a haven for their wealth pile money into the country. Last month, UBS and Credit Suisse imposed negative interest rates on short-term cash deposits in an attempt to stem inflows from investors seeking a haven from the eurozone crisis.

The move has caused a stir among traders, given Switzerland's significance as a hub for physical gold trading, and is also opening up opportunities for rivals. Non-Swiss banks are considering building new vaults in the country to take advantage of the move by UBS and Credit Suisse, according to industry executives.

Some gold investors began shifting their holdings from unallocated to allocated accounts - which are generally more expensive - at the beginning of the financial crisis. While holders of allocated gold are protected if a bank goes bankrupt, holders of unallocated gold could lose their investment.


"Banks have been keen for clients to move out of unallocated gold positions into allocated gold positions," said Philip Klapwijk, head of metal analytics at Thomson Reuters GFMS, a precious metals consultancy. "We had a phase where it was driven by perceived credit risks [after the bankruptcy of Lehman Brothers]. But this is being driven by banks themselves saying to customers, 'Move this gold to allocated accounts so it's not on our balance sheet'."

UBS has in recent months urged clients to place their gold in "collective pool custody" accounts - vehicles that maintain direct ownership of gold bars on behalf of several clients. By grouping clients' gold deposits, banks can avoid the logistical headaches involved in accounting for individual investors' bars.
http://www.cnbc.com/id/100417100

The last sentence of the article caused me to add a questionmark to the heading of this thread.
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Old 01-30-2013, 08:47 AM   #2
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Swiss banks now offer allocated gold silver accounts

http://www.zerohedge.com/news/2013-0...ilver-accounts

Quote :
Swiss banks, UBS and Credit Suisse, have moved to offer allocated gold and silver accounts to their clients – including high net worth, hedge funds, other banks and institutions.
Don't know if this has been covered before but this is going to put a huge strains on the silver market especially.

In the same article they also say

Quote :
Reuters reports that “huge quantities” of silver bullion coins were being bought by investors, including entire monster boxes full with 500 1 oz bullion coins sealed by the US Mint.

Edit: Oops see SwissAustrian already covered this
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Old 01-30-2013, 08:49 AM   #3
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Let's merge our two threads
http://www.pmbug.com/forum/f13/delay...phyiscal-2063/
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Old 01-30-2013, 08:56 AM   #4
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Originally Posted by swissaustrian View Post:
Let's merge our two threads
http://www.pmbug.com/forum/f13/delay...phyiscal-2063/
Done; let me know if there are any issues.
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Old 01-30-2013, 09:00 AM   #5
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works for me
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Old 01-30-2013, 09:14 AM   #6
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More momentus news for PM's.

I have no idea how the silver market will not completely explode this year.

According to the silver institute supply and demand

http://www.silverinstitute.org/site/supply-demand/

You got about 1 billion ounces and some change available each year.
Now industrial applications, photography, jewellery & silverware use up at least 750 million ounces a year.

So max you're looking at 300 million maybe 350 million ounces available for investment annually. Or 25-30 million ounces a month...

Now obviously January is usually the mints biggest month... but
- US mint has sold 7.5 million ounces
- SLV 'claims' to have added 18.3 million ounces.
- Canadian mint is rationing and they usually sell at least half of US, so +- 4 million ounces?

That's 30 million ounces already, just from 3 silver investment sources.

Now add China, India, Europe, The Rest of the world...
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Old 01-30-2013, 09:19 AM   #7
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SLV is the joker, it could all be just a bunch of hot air
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Old 01-30-2013, 09:31 AM   #8
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It could also be that the Dark Princes are losing their grip on "popular perception" and the masses are seeing the writing on the wall. All it takes is a little more sustained aggregate demand fopr metal that simply does not exist, and is not available for delivery, to set off the stampede. I say bring it!
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Old 01-30-2013, 10:40 AM   #9
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I wonder if the real reason for this push is that large institutions were starting to pull their gold out of the unallocated pools (perhaps a lagging consequence of Germany's gold repatriation waking some folks up).
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Old 01-30-2013, 10:51 AM   #10
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The odd thing is that the establishment mouthpiece FT is breaking the story...
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Old 02-01-2013, 08:26 AM   #11
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Originally Posted by PMBug View Post:
I wonder if the real reason for this push is that large institutions were starting to pull their gold out of the unallocated pools (perhaps a lagging consequence of Germany's gold repatriation waking some folks up).
Hey-O!

Quote :
Swiss gold fund manager Egon von Greyerz ... argues that the recent promotion by Swiss banks of their allocated gold accounts is aimed at stopping depositors from removing their gold from the banking system. But von Greyerz does not think that gold allocation at banks will be enough to protect gold depositors if banks fail and central banks want to grab their gold. ...
http://gata.org/node/12193
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Old 02-01-2013, 08:39 AM   #12
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EvG is not an independent observer on this issue. His company Matterhorn asset management is based on the insecurity of pm storage within the banking system. They're offering storage themselves.
Still, I don't disagree with it.
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