The CME On Gold As Collateral And Its Unsurprising London-Based Custodian

Tyler Durden's picture

While the increasing use of gold as accepted explicit (not implied) collateral has long been known, especially with an increasing push by Germany to receive gold as the ultimate guarantee backstop of the only viable Eurozone extension  scheme, the Redemption Fund, the other side's perspective, that of the exchanges has been missing. Now, courtesy of a report by Harriet Hunnable from the CME, titled "Some Insights into Changes in the Gold OTC market", we can see just how the status quo views gold's rising role in a world increasingly short of good collateral (even if, as the Chairman says, it is anything but money). And yes: that the CME has its gold custodian facilities with JPM London, where it is subsequently infinitely rehypothecatable and where it serves to restock the occasiona physical shortage here and there, does not surprise us at all.

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dereksatkinson's picture

Now if we could get 5% to take delivery..

Mr Lennon Hendrix's picture

Take back the money supply!

Buy Gold!

Buy Silver!

BaBaBouy's picture

GOLD To $50 Grand, Bitchies ...

Pladizow's picture

Fox guarding the hen house?

francis_sawyer's picture

long needles & thread... short billionaires...

strannick's picture

So..JPM is the custodian for GLD, JPM is the custodian for COMEX, and both of these along with the BOE's gold, and whatever allocated/unallocated (no difference) gold is lying around is all stored in one big happy vault in London.

Thats handy for when JPM needs to take the allocated gold from customers at Brokerages like MFG and PFG.

JPM obviously recognizes the value of a good gold bar, as they realize most of the vaule in the quadrillion in derivative prices are simply made up by their prop desk anyway.

Diablo's picture

HSBC is the custodian of GLD.

 

strannick's picture

Thanks, whoops. SLV...

Darth..Putter's picture

ANY futures brokerage with JPMorgan as the custodian is a scarey risk!

cynicalskeptic's picture

These aren't foxes guarding the henhouse - they're velociraptors.

There's a reason the 'regulators' aren't doing their jobs.  They're hiding and running - afraid of being devoured a la Jurassic Park.

LowProfile's picture

I think you mean the USD is going to Au 0.0005 gm,

Leopold B. Scotch's picture

OLD NEWS...   $ 0.03????   That's already happened.

 

http://www.bls.gov/data/inflation_calculator.htm/

Enter the $1.00 today and the price adjusted back to 1913.  $ 0.04 is the answer.  Then consider how horribly rigged CPI has been for the last 30-years.

For those not initiated to the ways of politicized / corrupted "official" statistics, this is a great primer:

www.shadowstats.com/pdf/779-626538446.pdf

 

 

cynicalskeptic's picture

Ding! Ding! Ding!   We have a WINNER!!!!!

The sad thing is that 99,.99% of the peopel don't have aclue on how much less their money is worth, how much less their buying power it, how much their savings (if they have any) have lost in value.....       

 

My best in degree starting salary for engineering in the late 70's won't hire a bubbleheaded receptioninst today.  The car I would have paid $#500 for on graduation now costs $35,000.  The crap house my grandparents paid $12,000 for in 1948 sold for well over a half million a couple years back.  

And the Silver Eagle I bought to give to my kid when he got out of HS costs twice as much (even with the slamdowns on PM's) for college graduation four years later.

LowProfile's picture

 

Take back the money supply!

Buy Gold!

Buy Silver!

...And TAKE DELIVERY!!!

dereksatkinson's picture

And the system would collapse..

Mr Lennon Hendrix's picture

If people didn't recieve it then some, maybe even most, would go out with the cash payment from their contract and buy bullion.  And yes, if that happened it certainly could wipe the shelves clean.  We are already close now.

Think if dimes carried a massive premium because the supply was low.  Think if silver demand continues to soar?  There are plenty of people out there that are talking about investing in gold and silver who haven't done it yet.

Right now 1% of investors hold some form of exposure to "precious metal" if by mining shares, ETFs, or bullion.  Think if we increased that to 5%.  It could mean a five fold move.

Now think if we got that whole move to happen in bullion.  It would wipe the shelves clean.  People have been investing in silver at a furios pace for years now.  The real question is not if, but when.

Buy silver

Pladizow's picture

If contracts were forced to settle in cash, I would assume it would be because there would already be no physical on the "shelves".

Mr Lennon Hendrix's picture

At the COMEX, maybe.  At Ft Knox and the Citidel, probably.  At the NYFRB, most likely.  But there will be bullion on the shelves of coin shops until once second to midnight.  Thus why everyone should go meet their coin dealers if they haven't, and at least start buying silver coins.  If you can afford gold, by all means, by that.

LowProfile's picture

You had it right at the top of the comments:  Buy GOLD.  Buy SILVER.  And only buy as much as you UNDERSTAND, or you are liable to panic when the wild price fluctuations start to happen.

I recommend holding 10 ounces Ag to every ounce of Au, but I was a speculator, and likely held too much silver.

I say was a speculator, because I owned both...  Until that unfortunate boating accident.  Learn from my fail!

FYI, I gave you an up arrow.

francis_sawyer's picture

Based on the present GOLD:SILVER ratio, (& depending on your timeframe)... You are 'discounting' your gold purchase by buying Ag at the moment...

LowProfile's picture

Agree if you are speculating that silver looks undervalued relative to gold at the moment.

The issue with silver is that if the Central Banks make a last-ditch attempt to maintain relevancy by putting a high bid under gold (they offer to buy all gold at say, $50k per ounce, instantly revaluing all gold upwards to that price point), doing so in order to recapitalize their balance sheets, even though silver will do well in that scenario (in a knee jerk fashion), it is very likely it will not appreciate in the same percentage terms as gold.

So, silver is more speculative than gold.  Purchase accordingly.

Only buy as much gold and silver as you understand, otherwise you will likely sell out, be disappointed, or both.

Leopold B. Scotch's picture

Settling out int cash already happened a long while back in the London markets.  They had to freeze the payout at a specified mark and hold, dislocating that cash settlement from the ongoing market price, which continued to shoot up.  This will happen again.

The whole point of owning gold is specifically to protect you from assets that are bullshit / deflating against real $$.

Revert_Back_to_1792_Act's picture

When you say GOLD:SILVER ratio, You are speaking of the price ratio?  If you had to guess about the physical ratio what would you say that is.  Comments from anyone on this subject are appreciated.

  Keep in mind, the USA took a LOT of gold out of the ground when they were trying to meet their obligations under Bretton Woods (which was basically impossible for them to do).  It is also important to note that the People of the USA could not own any real quantity of gold during this time period of about 35+ years.  They were mining the crap out of it though.  By the end of Bretton Woods, we had gold at $35.00 an ounce but it was trading everywhere else in the world for like $70.00 an ounce in terms of FRN's.  (These figures are out of my ass BTW). 

Mining operations like this - engineering on the scale of the pyramids.

http://en.wikipedia.org/wiki/Homestake_Mine_%28South_Dakota%29

 

 

LowProfile's picture

Honestly, I have no idea what the actual, above ground physical ratio is, given what you point to, the fact we haven't done an actual audit of Ft. Knox since the 50's, rumors of Japanese gold in the Philippines, amount of silver consumed through industry, etc. etc. etc.

I only know that people with power will try and hold onto as much of it as possible, and in the case of the Central Banks, one way they can avoid losing ALL their power would be to put a bid under gold before the entire world stops using their multicolored toilet paper entirely.

_ConanTheLibertarian_'s picture

Don't want to rub it in, but were you the only one here with a boating accident?

oddjob's picture

No, he was the shill pissing all over Silver just 3 days ago.

LowProfile's picture

Lol, shill.  Brilliant.

oddjob's picture

your 180 on a dime was better.

LowProfile's picture

Try writing something someone might actually understand for a change.

Western's picture

He's saying your posts reek of a practiced internet advertiser with the specific goal of making silver a speculative asset.

DosZap's picture

If people didn't recieve it then some, maybe even most, would go out with the cash payment from their contract and buy bullion.  And yes, if that happened it certainly could wipe the shelves clean.  We are already close now.

Mr. Hendrix, problem with that, is the price would be so damned high, they are screwed.

People like animals, when they see a short supply of ANYTHIN they need or use, get the herd menatlity as you know.

No delivery, I think your SOL.

Shameful's picture

Will be one hell of a day when all that gold gets 'vaporized'.

XitSam's picture

LONDON -- Due to unprcedented demand, custodians from JP Morgan and HSBC accessed their London vaults today and found nothing but dusty shelves, reports a mid-level JPM employee that has requested anonymity. "Completely empty. They are running around like headless chickens right now trying to explain where the allocated gold went," said the employee.

Officials from JP Morgan and HSBC said in a joint statement that there is no reason for panic. "The full resources of the banks are available to make good any gold deposits that may have been misplaced.  We are sure this is simply an accounting problem and will resolve it as soon as possible."

Outside the locked doors of HSBC's London office, a small mob of men in suits and bowler hats were demanding entrance and to know the location of their allocated gold. "It may be over a trillion £ missing. Me own deposit of 4,900 ounces is nowhere to be seen," said Mr. Gordon Tutwiller.

Gold and silver prices have skyrocketed on the news. Trading has been halted on all major exchanges.  Coin shops and bullion dealers are refusing to sell any bullion until the crisis is resolved. "My stock is locked in the safe. Who knows what the prices will be like in one or two days," said the owner of Clarkson's Coins and Bullion, "but I'm sure it will be much higher."

(Is there employment writing future news?)