Is there a secret derivatives collapse now pushing up the gold price?

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An honorable member of the Coffee Shop Has Just Posted the Following:

The sudden and probably involuntary resignation of two Deutsche Bank CEOs, Anshu Jain and Jurgen Fitschen last weekend has raised speculation about that bank’s epic $73 trillion derivatives mountain to fever pitch in global financial circles. Mr. Jain was specifically hired by the bank to build Deutsche Bank into the world’s largest derivatives dealer, a task he achieved.

The Securities and Exchange Commission announced that it had reached a settlement with the bank for improperly valuing its risk exposure to credit derivatives on May 26th. But that may not be the whole story of course. Only three weeks ago the bank’s board had given Mr. Jain more power.

Derivative problem

His sudden fall from grace just has to be linked to this SEC settlement. But does his departure and that of his colleague Herr Fitschen really close this book? What does it say about how one of Europe’s largest banks is managing its internal accounts and its exposure to derivatives?

Derivatives have placed leverage upon leverage in global financial markets. In theory they should all always net down to zero but that assumes some very complex math and no corruption in the system.

The only way to test this system is to put it under stress and see what happens when it breaks. The malfunctioning of the global bond system right now is doing just that.

Indeed, it is most likely that the recent massive gyrations in German bund yields is behind whatever is ailing the derivatives market right now. The two are joined at the hip and leverage in the derivatives market amplifies distortions.

Sub-prime crisis

The clear parallel is with the disruption caused by the miss-selling of mortgage-backed securities before the last global economic crisis. Lehman Brothers’ insolvency was the trigger that brought this house of cards falling down.

Are we about to see round two of the global financial crisis? Well one indicator is the recent strength of the gold price which seems reluctant to conclude the final phase of its four-year bear market. Why won’t it fall now when physical demand from China and India seems to have fallen and retail investors are so fascinated by stocks?

The most obvious answer would be that there is demand for gold but from insiders like the global central banks who really know what is going on behind the scenes.


http://www.arabianmoney.net/gold-sil...he-gold-price/


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