Marketwatch reports that CME to allow gold as collateral for all exchange products.
(emphasis mine) [my comment]
Oct. 19, 2009, 9:45 a.m. EDT
CME to allow gold as collateral for all exchange products
By Matthew Walls
LONDON (MarketWatch) -- U.S.-based clearing house CME Group Inc. will allow physical gold to be used as collateral for margin requirements on all exchange products, a spokesman said Monday.
The new global policy is effective Oct. 19 in accordance with a member's notice issued late Friday, said spokesman Jeremy Hughes in London.
Clearing member firms will be allowed to post up to a maximum of $200 million worth of gold as collateral to cover performance bond, or margin, requirements, Hughes said.
The policy was a byproduct of CME's recent launch of clearing services for over-the-counter London gold spot and forward contracts, he said.
"Many of the [trading] houses hold quite a lot of physical gold and would welcome using it more efficiently," he said.
The gold will be held at J.P. Morgan Chase & Co.'s/quotes/comstock/13*!jpm/quotes/nls/jpm bank in London. [extremely suspicious]
Tyler Durden at Zero Hedge explains the possible significance of this event.
Is JPMorgan in urgent need of gold replenishment? If one reads between the lines of today's surprising announcement out of the CME, that the Chicago exchange will allow the use of gold as collateral for margin requirements (for up to $200 million), with the actual physical gold to be stored at JPM's bank in London, that is one possible explanation.
Recent rumors have speculated that gold could be in a state of severe backwardation, which would explain the dramatic spike in gold prices over the past month. Yet for all discussions over gold's (lack of) value, today's move by the CME is surprising as margin requirement satisfaction has traditionally been relegated to extremely liquid securities (assorted currencies). One wonders if this is merely a way for large banks to begin replenishing their depleted gold coffers (and continue shorting) after repatriation efforts by several key sovereigns in the past quarter.
My reaction: I view this new CME policy as an act of desperation. The decision to "allow physical gold to be used as collateral for margin requirements on all exchange products", against a backdrop of record prices and widespread abnormalities in gold markets, screams that something is wrong. This policy would never have been implemented unless JPMorgan really, really needed gold.