CME To Allow Gold As Collateral For All Exchange Products

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.

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5 Responses to CME To Allow Gold As Collateral For All Exchange Products

  1. Robert says:

    haha. that's hilarious.

    "give us your gold as collateral. we then sell your gold (but don't worry your account is still credited and obviously the CME/JP has no credit default risk!) and also naked short the crap out of it to all the paper longs until the price goes down - then you have to give us more gold for collateral to meet the new margin requirements! Then we manipulate whatever CME products you bought with the collateral so that you lose on those too and we dont have to give back the gold!" - JP Morgan

  2. Anonymous says:

    Model it to the extreme.

    If the system collapses, JMP will own it all, ... and if the system is to survive, JPM will keep receiving allegiance.

    No, I am afraid that this new CME policy just adds another shell, another derivative, to hide the pea under. What this policy will accomplish, is to legally transfer the wealth (gold) from the likes of the US Government to the likes of JPM.

  3. Anonymous says:

    Will they accept gold plated tungsten too?

  4. Gold says:

    Buying and collecting Gold Coins is a good investment. Find out more on this site for more information about gold investment, buying Gold Coins and a lot more other precious metals:

  5. misso says:

    It looks like Germans are also very aware that there is NO gold anymore in US treasures.

    (Sorry that is just in German, but message and tables are very clear)

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