Morning Gold Fixing: JP Morgan Accepts Gold Bullion As Collateral – Silver Backwardation To Lead To Short Squeeze?

Tyler Durden's picture

Submitted by GoldCore

JP Morgan Accepts Gold Bullion as Collateral – Silver Backwardation to Lead to Short Squeeze?

Gold is marginally lower in euro, pound and dollar terms and marginally higher in Japanese yen and Swiss francs. Silver is higher in all currencies. With gold’s 0.51% higher close last week (first rise in 5 weeks) and silver’s 4% rally, the bears will be nervous that the recent downward trend may have reversed.

Cross Currency Table GoldCore

Cross Currency Table

Asian equities were higher except for the Hang Seng which fell 1.49% as developers fell on concerns regarding Chinese property prices. European indices have shrugged off the tensions in Egypt, North Africa and the Middle East and the Euro Stoxx 50 is up by 1.1%.


UK Gilts 10 Year (30 Days (Tick) GoldCore

UK Gilts 10 Year (30 Days (Tick)

European sovereign debt yields are flat. UK gilts have seen some selling again today with the yield rising to 3.86%. In just 5 weeks the yield on the UK 10 year has risen nearly 50 basis points from 3.393% to 3.86%.

Most commodities are higher today and NYMEX crude oil is up 0.2% to $89.21 and Brent up 0.7% to $100.56 a barrel.

JP Morgan announced today that from now on they will accept physical gold bullion as collateral. This is a sign of gold’s further remonetisation in the global financial and monetary system. It may signal that JP Morgan is having difficulty in securing gold bullion in volume. JP Morgan is the custodian for many of the gold and silver exchange traded funds. They will not accept ETF trust gold as collateral.

In October, the clearing house of global exchange CME Group – CME Clearing – announced it will now accept gold as collateral for trades on the exchange. Gold bullion can be used for margins for CME trades, ranging from crude oil, gold, grains, equity indexes and Treasury bonds.

Given the current monetary, macroeconomic and geopolitical risk gold is an attractive alternative to debt, equities or other paper assets as collateral.

JP Morgans’s move shows how gold bullion’s fungiblity and tangibility as an asset makes it attractive and shows gold’s increasing importance in the financial system.

Interestingly, the CME is storing their collateral gold at JP Morgan Chase Bank in London. The exchange said it hoped to add additional depositories in the future but there has been no announcement of developments in this regard.

Silver prices remain in backwardation, showing that buyers are willing to pay a premium for silver delivered sooner rather than later.

Both gold and particularly silver are vulnerable to a short squeeze that propels prices beyond their recent record nominal highs. In the gold market that are some 80,000 short contracts which is more than 30% than the average short position in 2010.

The concentrated shorts who the CFTC has been investigating will be nervous and given the strong fundamentals in the bullion market may be forced to buy back their positions in order to protect themselves from significant losses.

 

NEWS:

(Bloomberg) -- JPMorgan Will Accept Gold as Collateral for Securities Lending
JPMorgan Chase & Co. said it will accept physical gold as collateral “to satisfy securities lending and repo obligations with counterparties.”

The company expects to accept additional precious metals and commodities as collateral later this year, it said today in an e-mailed statement.

(Bloomberg) -- Investors Have $102 Billion Bet on Gold, Silver Gains
After the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.

The five analysts ranked by Bloomberg as the most accurate over two years expect silver to rise as much as 23 percent before the end of 2011 and gold 20 percent, the median of their estimates show. UBS AG predicts the strongest industrial demand for silver since at least 1990 and the second-highest sales of exchange-traded gold products on record.

The decade-long surge in gold attracted fund managers from John Paulson to George Soros and is now spurring central banks to add to their reserves for the first time in a generation. Once written off as demand for photographic film waned, silver found new uses in everything from solar panels to plasma screens, making it the precious metal most used in industry. As stocks rose 9 percent and Treasuries returned 67 percent since the end of 2000, gold surged fivefold and silver sixfold.

“I had to chuckle when I saw reports that it was over for gold,” said Michael Cuggino, who helps manage $10 billion at Permanent Portfolio Funds in San Francisco, and has about 20 percent of his assets in gold. “Some investors have taken money off the table after a significant run-up in 2010. If you look at the macro environment, the instability around the world, the worldwide currency devaluation, these factors all bode well.”

(Bloomberg) -- Venezuela’s Gold Reserves Rise 12%, Reserves Abroad Fall 37%
Venezuela’s central bank increased its gold reserves 12 percent in the second half of 2010 while its reserves in foreign banks fell 37 percent in the period, according to the bank’s year-end financial report published in today’s Ultimas Noticias.

The bank’s gold reserves increased to 42.4 billion bolivars ($9.86 billion) at the end of 2010 from 37.3 billion bolivars at the end of June, the bank report said. The central bank’s reserves held in foreign banks fell to 7.32 billion bolivars by year-end from 10 billion bolivars in June.

(Bloomberg) -- Sugar Shortage Looms as Storm Ruins Australian Crop
World sugar output will probably fall short of demand, said Rabobank, after a cyclone with winds stronger than Hurricane Katrina destroyed homes and smashed crops in Australia, driving prices to 30-year highs.

(Bloomberg) -- Corn Advances to 30-Month High as World Inventories Set to Drop
Corn climbed to the highest level since July 2008 on speculation that a U.S. government report on Feb. 9 will show global stockpiles declined before the 2011 harvests because of increasing demand.

(Bloomberg) -- South Korea’s Lee Calls for Food Crisis Task Force, Yonhap Says
South Korean President Lee Myung Bak said that the government needs to create a joint task force with civilian experts to tackle food security amid soaring global prices, Yonhap News reported.

(Bloomberg) -- Bernanke Bet Commodities Won’t Boost Inflation Wins Investors
Investors are betting with Ben S. Bernanke that surging food and energy prices won’t accelerate U.S. inflation, allowing him to maintain easy money.

(Bloomberg) -- Egypt Crisis to ‘Impact’ India Central Bank Actions
Egypt’s political crisis poses a risk to oil prices and will “impact” the Indian central bank’s actions, Deputy Governor Subir Gokarn said.

(Bloomberg) -- ‘Unhealthy’ Budget Safer Than Top-Rated France: Japan Credit
Japan is a safer investment than France even after Standard & Poor’s cut the Asian nation’s credit rating to three steps lower than its top-ranked European counterpart, credit-default swap prices show.

(Bloomberg) -- Euro Gains Before German Factory, Industrial-Production Reports
The euro rose against the dollar, snapping a three-day decline, before German reports this week that economists said will show factory orders climbed from a year earlier and industrial production expanded.

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whopper's picture

One health care system

One central bank

One Fuhrer

bankrupt JPM buy silver's picture

Here comes another CME hike on silver....I can smell it

 

www.silvergoldsilver.blogspot.com

flaunt's picture

They just raised margin requirements the other day.

tmosley's picture

And the day before, and the day before that too!

truont's picture

Rumor has it that wealthy Chinese are exchanging their GLD shares into physical bullion through "authorized participants".

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/2/7_KWN_Source_-_Expect_Massive_Chinese_Gold_Buying_Using_GLD.html

Ruh, roh, Blight Masters!

SRV - ES339's picture

Dear Whopper,

We regret our assumption that America was ready for a black president, and for the resulting psychological challenges you face as a result of our indiscretion.

Sincerely,

52% of America

Cookie's picture

JP Morgan announced today that from now on they will accept physical gold bullion as collateral. This is a sign of gold’s further remonetisation in the global financial and monetary system. It may signal that JP Morgan is having difficulty in securing gold bullion in volume. JP Morgan is the custodian for many of the gold and silver exchange traded funds. They will not accept ETF trust gold as collateral.

 

But, but...gold isn't money, right??

Freewheelin Franklin's picture

I thought ETFs were "as-good-as-gold".

 

Silly me.

Quinvarius's picture

Sine JPM is the custodian of IAU and GLD, I think they have good reason not to accept either as collateral.

Freewheelin Franklin's picture

Yeah, I caught that, too. Didn't they also recently open their vaultst to the public for personal storage of gold?

bigdumbnugly's picture

lol.  right.  they can reach down into their own pockets as far as they want and they know almost all they'll get is lint.

Jean Valjean's picture

This is a huge "tell" and should be shouted from the rooftops.  I know most ZHers know this but most investors don't and don't understand the implications.

Think about it.  If GLD was chock full of physical bullion and not a fractional reserve scam full of bankrupt paper promises, JPM would have no reason not to accept GLD shares as collateral.  The fact that they don't actually PROVES beyond doubt that GLD is a scam.

SilverIsKing's picture

When you call in your gold collateral, they will surely offer you shares of GLD or cash back instead.

DosZap's picture

Bingo,

You will play hell getting Phsical from GLD.

ChookChoker's picture

If you insist on physical you will get your gold plated tungsten back. They will probably even stamp the same number on it as the bar that you gave them.

trav7777's picture

GLD is described as a trading instrument whose purpose is to track the price of gold through use of derivatives instruments.  I'm not sure whose idea it was that GLD or similar vehicles should ever have held any real physical.

Perhaps there is some actual gold held because that was necessary to get the instrument off the ground, get people to buy into it as pseudo-unallocated ownership, but you have to expect any BANK to start to back out its investment just as soon as possible.  I mean, jeez, even in the illustrious history of central banking, look at the BOE; the original investors backed their capital out of that within less time than GLD has been around.

tmosley's picture

Whether they should or not is moot.  They claim they do, and they update their "inventory" every business day.  

Harvey reports the changes every day.  harveyorgan.blogspot.com

the rookie cynic's picture

+ 1 I'm getting on my roof right now.

snowball777's picture

The company expects to accept additional precious metals and commodities as collateral later this year, ...

 

Does that mean sugar and wheat are going to be 'money' too?

tmosley's picture

No, but they are assets.

"But you can't eat cake!"

ZeroPower's picture

And copper. Keeps making the highs. I've mentioned this before, but higher copper is the big tell everything is 'ok' aka higher values across the board.

4xaddict's picture

traditionally copper has had a degree in economics however in a rigged market it's hard to trust it as much as before.

Interesting that gold was 0.51% higher and up for the first time in 5 weeks and the author is already calling an end to the latest healthy correction.

Above 1380 on a weekly timeframe and we could see things higher, below that and we are more likely just seeing a retest under the recetnly broker rising trendline that would lead to further falls into the 1250 area once 1300 is cleared.

Gold will go miles higher than here however an 0.5% increase for the first time in 5 weeks is hardly a reason to pop champagne for all those who bought in at 1430+.

It will happen but why make silly calls like this, it just reduces the credibility of the other information in your article that was interesting.

Call me a troll if you like people but I am a PM bull too, just remain a realist.

DeltaFunctionToronto's picture

Perhaps the author in his "naivety" has taken a hint from the tbond market, and a 5 week trading range breakdown. Long term, the gold price is a function of confidence in debt, and thus major price-time intersections in this market overrides all technical indicators. This means, expect bearish formations under certain circumstances to yield violent bullish reversals.

Oh and, I don't know, a significantly skewed OI distribution OTM/NTM in unusual places that supports his thesis?

Then there's a mass of anecdotal evidence large interests have been left in the cold following inquiries for physical delivery.

Add on top of all of this the fact we've elicited an overdue target for a short-term cyclical low -- thus you have a bottom.

jeff montanye's picture

that jpm will accept gold bullion as collateral but not gold etf pretty much says it all.

gwar5's picture

Exactly. Spot on. That's an admission there's no gold in GLD or they'd take it in a heartbeat.

bob_dabolina's picture

Really? When was the last time the bank let you pledge your neighbors house as collateral?

tmosley's picture

When I owned the mortgage.

You can pledge anything you own as collateral, including ownership of loans you have made, or shares of stock or ETFs.  Of course, if the banks knows that something is worthless or likely to become worthless, then they WON'T take it.

Canuckistan Al's picture

Well, you'd tend to think so, but I can tell you from experience. I once tried to offer a significant amount of shares that I owned in the actual bank (that I was trying to acquire a Line of Credit from).

They wouldn't accept them as collateral, even though the value of those shares was nearly double the amount of the credit line.

I asked my banker what she thought that that said about their faith in their own financial institution. All I got was a blank look in return.

Womb Service's picture

I think you guys are missing the point though. GLD is supposed to be as good as gold. If they ARE accepting gold, why wouldn't they accept GLD? One should be the same as the other.

Rhetorical question of course. We know exactly why they won't take it.

tmosley's picture

Yes, you can pledge anything you like as collateral.  That doesn't mean they will accept it.  The point is that accepting gold as collateral, but not GLD is both hilarious and telling.

dearth vader's picture

Wait, according to Ed Steer JPM owns the GLD ETF, for the greater part, that is.
So, they know exactly what it's worth, and the same goes for the other ETFs into the bargain.

snowball777's picture

Take delivery at "End of Rainbow".

Snidley Whipsnae's picture

Agreed... JPM doesn't want a claim on 100:1 levered PMs as collateral.

JPM already has vaults full of that crap!

Hephasteus's picture

But they won't push hard for a gold standard till they can rob it back.

People ought to use trash cash as collarteral. Play fair.

LoneStarHog's picture

"They will not accept ETF trust gold as collateral." -- Could it be that there is very little or no physical gold for collateral?

bob_dabolina's picture

You can't accept something as collateral that is owned by other people.

GLD is widely owned by investors all around the world.

I don't see how it makes a difference though. It's not like the banks have ever followed the rules in the past.

HoofHearted's picture

Since when are my ETF shares owned by someone else? I paid for the damn things; they had better be mine. And with a large enough number of shares I can theoretically demand that they give me a proportionate share of the gold to take away and store in my own vault or under my mattress or whatever. Notice the "theoretically" part.

I don't own GLD or SLV for the trolls out there. I might own some physical gold and silver, but I cannot confirm or deny that. I've read about FDR and 1933.

Attitude_Check's picture

Soo when I buy a share in GLD it is really "owned" by others, and in reality I have bought nothing!   Yep that sounds about right.  And is the whole point being made here in the comments.  You are in violent agreement it seems.

Twindrives's picture

In other words.... JPM will take your physical gold as collateral.......and keep it. 

 

Careless Whisper's picture

Bernie Madoff's aider & abettor isn't getting within a fifty mile radius of my gold.

trav7777's picture

I shot this squirrel for lookin' at my gold

Cash_is_Trash's picture

A fresh batch of backwardation comin' up!

BrianOFlanagan's picture

I've thought the 100oz story was overblown, but this backwardation plus registered inventories at 5-year lows is indeed indicative of a shortage.  

savagegoose's picture

i wouldnt store my stinking pile of feces with JPM never mind real money. dream on assholes

Apostle of Unknown's picture

you're hoarding your own feces?

sharkbait's picture

they may be worth more thn FRN's some day!  Can be used as fertilizer.  Fece stacking put's a whole new perspective on the meaning of SHTF.

savagegoose's picture

yeah i like t5o mix it with water and spray on fresh fruit i grow, then export to china.