Imminent EU Financial Crunch Could Signal Big Gold Price Jump
When you’re on a ship that you know is going to take a hit from the equivalent of an “air-to-sea” missile, you don’t wait to try and protect yourself.
The EU may be that ship, and could it take a big economic hit come March 2019 to the tune of $38 trillion in uncleared derivatives contracts.
Derivatives allow trading of assets that derive their value from elsewhere. For example, credit swaps and options are two common derivatives.
Business Insider reported on this explosive development (emphasis ours):
You might think the EU would be preparing for this market calamity. Especially since it’s tied to the political “ball-of-yarn” known as Brexit (British Exit from the EU).
Nope, it isn’t. Not yet.
The same Business Insider article reveals that since the EU derivatives market is interlinked with the rest of the continent, a hard Brexit would mean trillions of dollars of these contracts go POOF!
The result could be dire for the EU, and send shockwaves of panic throughout the global economy because of the enormous scale of loss.
And from page 9 of the Bank of England “Financial Stability Report” (see image below) we can see the EU is unprepared for this. They stated that after a hard Brexit they “have not announced an intention to enable UK counterparties to continue servicing contracts.”
So even with the $38 trillion warning from the Bank of England, it seems like the Government is sticking its head in the sand.
But as Ron Popeil used to say, “But wait, there’s more…”
EU: “We’ll take a double-order of Hard Brexit problems, please!”
If the threat of trillions of dollars worth of derivatives going up in smoke weren’t enough, it appears a hard break with the UK would also “threaten financial stability” in other ways. According to Sam Woods:
If the “financial stability” of the EU is already in question, then a hard Brexit scenario in March would most certainly lead to market chaos.
Especially when you couple EU financial instability with the advance warning of a trillion-dollar derivative contract conundrum.
Big Brexit Price Jump for Gold Possible in March 2019
If the past is an indicator of the future, there may be a good possibility gold will make a big price jump on a “hard” Brexit.
Back in 2016, when initial Brexit panic struck, it jumped 22% against the pound according to Adrian Ash (emphasis ours):
The derivative market turmoil set for March provides a golden opportunity to get in front of what could be a significant boost in gold’s price.
Plus, in addition to this trillion-dollar derivatives time bomb, we know that a “Brexit” will likely harm the U.S. economy.
If you’re thinking of hedging your bets, now would be the time, while there’s still time on the clock.
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