CME To Allow Gold As Margin Requirement Collateral
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. From a Nasdaq press release:
U.S.-based clearing house CME Group Inc. (CME) 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 gold will be held at J.P. Morgan Chase & Co.'s (JPM) bank in London.
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. An indication of the validity of this theory would be whether or not other large banks follow in CME's (and JPM's) footsteps and begin "allowing" gold to be pari passu with the dollar (settling quite a few bets whether gold is in fact money).