The pall over global equities begins anew this morning as investors blow out CDS — or insurance against a default — on Deutsche Bank.
DB is taking all European bank stocks down roughly 5% as the largest German bank — with a reportedly $100 trillion derivative exposure — is spreading worry of counter-party risk throughout the continent.
Credit default swaps are a gauge of the credit worthiness of a bank and DB’s have hit a 5-year high, along with Credit Suisse and HSBC, and many other banks nearing their own highs.
Just to be clear, this metric was the one that took Lehman Bros. out in 2008. No one would lend to the bank and the whole operation imploded.
Now things have changed, DB has the backing of the ECB and the German government, but its book is so massive that to know what assets are in trouble could be nearly impossible. But once sentiment turns against the bank, it’s a slippery slope to panic selling.
As equities across the globe sell off more than 10% from 2015 highs, gold has had a nice 10% run up in 2016.
Contagion fear and currency wars have the precious metal moving higher. The run-up extends to gold and silver mining stocks and precious metals equities.