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Gold Continues To Be Money: CME Europe Now Accepts Gold As Clearing Collateral

Tyler Durden's picture





 

Over two years ago, the US Clearing house of the CME, the world's largest derivatives marketplace, had no choice but to allow gold as collateral. Why: because as we showed some days ago, while in Europe bank deposits are expansive, in the US, financial system funding relies primarily on mythical assets as liabilities, i.e., those that exist primarily due to faith in the system, something which has been in short supply, as a result of which the $15 trillion (down from a peak of $23 trillion) shadow banking system long used to fund regular operations, has been imploding.

Couple that with a scarcity of other (re)pledgeable assets which in the US do not, unlike the UK, have an infinite rehypothecation chain, and one can see why back in October 2009 the CME had no choice but to accept gold as eligible collateral for clearing purposes.

As of minutes ago, the European arm of CME Clearing has folded too, and has released a press release stating that it to0 "has extended the range of eligible collateral types to include gold bullion." Of course, this is the same gold bullion that Germany will be seeking to "repo" in exchange for sovereign bail outs as Europe's periphery continues to run out of endogenous money and has to increasingly rely on the benevolence of the Bundesbank.

For now all we need to know is that another exchange just threw in the towel and admitted that contrary to Bernanke's stern position, gold is, indeed money.

Full press release:

CME Clearing Europe, the London-based clearing house wholly-owned by CME Group, the world's leading and most diverse derivatives marketplace, today announced it has extended the range of eligible collateral types to include gold bullion.

 

The extension offers additional flexibility at a time when high quality collateral is at a premium and the clearing of over-the-counter (OTC) derivatives is increasing. CME Clearing Europe has followed the lead of CME Clearing, which has accepted gold to cover margin requirements since October 2009.

 

Launched in May 2011, CME Clearing Europe currently clears OTC commodity derivatives and plans, subject to regulatory approval, to introduce OTC Interest Rate Swap clearing later this year.

 

CME Clearing Europe

 

CME Clearing Europe is an FSA regulated, multi-asset class clearing house based in London that offers more than 200 OTC products for clearing. Its clearing model ensures stability and increases transparency in the OTC markets that it clears. CME Clearing Europe has its own dedicated staff, and its governance arrangements, capital and default resources are separate from those of CME Clearing in the US. As part of CME Group it nonetheless has full access to the to the clearing and risk management expertise, systems and financial strength of CME Clearing. More information can be found at www.cmeclearingeurope.com

 


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Fri, 08/17/2012 - 07:12 | Link to Comment Neethgie
Neethgie's picture

wouldnt read too much into it, they are getting so desperate soon you'll be able to use rumours as collateral

Fri, 08/17/2012 - 07:24 | Link to Comment Winston Churchill
Winston Churchill's picture

The Ny Fed has been doing that since 2008.

Get with the program.

Fri, 08/17/2012 - 07:38 | Link to Comment malikai
malikai's picture

Dislocation Friday is in full effect: http://www.quantsig.net/img/com_gold.png

Fri, 08/17/2012 - 08:14 | Link to Comment SWRichmond
SWRichmond's picture

So in this environment, where customer seg funds are legally and officially not seg at all, where assets are routinely rehypothecated again and again (creating an ever more-confusing chain of claims and custody), I'm going to pledge gold as collateral?

You've fucking got to be shitting me.

Fri, 08/17/2012 - 08:56 | Link to Comment tocointhephrase
tocointhephrase's picture

Joke eh?

Fri, 08/17/2012 - 08:57 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

SWRichmond... imo, all they are saying is "We are going to use your seg PMs as collateral and mix your funds with ours (and btw we don't have any funds) so that we can continue to play in the casino"

After all, precedent has been set and we are not going to jail when we steal your PMs/funds.

http://www.youtube.com/watch?v=GwKGNO59pqA&feature=youtu.be

Ann Barnhardt: A Matter of Record

Hat tip to Jesse

Hat tip to ZH

Fri, 08/17/2012 - 07:16 | Link to Comment RealFinney
RealFinney's picture

Muppet pelts will be next for acceptable collateral.

Fri, 08/17/2012 - 08:30 | Link to Comment malikai
malikai's picture

Here's how it works:

 

  1. Establish shorts in all "inflation sensitive" commodities.
  2. Get your boys over at the CME/LME to take gold as collateral at a time when margin req's are low.
  3. Wait for the muppets to show up.
  4. Get your boys over at the CME/LME to hike margins in all "inflation sensitive" commodities.
  5. Watch the muppets run like crazy.
  6. Watch margin calls cascade while their colladeral itself loses value.
  7. Cover shorts.
  8. Enjoy your replenished stocks of gold/silver/etc.
  9. Hookers and Blow.
Fri, 08/17/2012 - 08:31 | Link to Comment BLOTTO
BLOTTO's picture

Gold was money before it even knew it was going to be money (among other things)

Fri, 08/17/2012 - 10:07 | Link to Comment killallthefiat
killallthefiat's picture

Very smart Malikai!

Fri, 08/17/2012 - 07:17 | Link to Comment Mark Wilson
Mark Wilson's picture

Where's our Pussy Riot verdict post?

Fri, 08/17/2012 - 07:21 | Link to Comment Mark Wilson
Mark Wilson's picture

And the verdict is: GUILTY

Fri, 08/17/2012 - 07:55 | Link to Comment quasimodo
quasimodo's picture

Who cares about the verdict? Where is the pussy?

Fri, 08/17/2012 - 07:17 | Link to Comment tradewithdave
tradewithdave's picture

It is simply "additional flexibility" (cough), nothing more. Now carry on.

www.tradewithdave.com

Fri, 08/17/2012 - 07:20 | Link to Comment firstdivision
firstdivision's picture

Is the ECB buying ITA10Y and SPA10Y with gold? 

Fri, 08/17/2012 - 07:20 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

Gold, bitchez!

Fri, 08/17/2012 - 08:58 | Link to Comment tocointhephrase
tocointhephrase's picture

<<----------Silver BiTcHEz-----------

Fri, 08/17/2012 - 09:31 | Link to Comment awakening
awakening's picture

Why not both Gold and Silver? They always advised us to diversify, no?

Fri, 08/17/2012 - 07:22 | Link to Comment Peter Pan
Peter Pan's picture

Who are the fools that are handing over their gold to the CME Europe? They may as well pawn their children to pedophiles.

Fri, 08/17/2012 - 07:46 | Link to Comment LoneStarHog
LoneStarHog's picture

Look!  The board pedophile is up early this morning with his/her DOWN arrow.

Fri, 08/17/2012 - 08:17 | Link to Comment cowdiddly
cowdiddly's picture

Gold and silver and copper are not only money They are THE money. Everything else is just a derivative.

Sorry Bernake and Gordon Brown.

Fri, 08/17/2012 - 11:18 | Link to Comment Overfed
Overfed's picture

Don't apologize for being correct.

Fri, 08/17/2012 - 08:36 | Link to Comment Zero Debt
Zero Debt's picture

You nailed it Sir.

The trustworthy CME group who was supposed to guarantee MF Global client's money now invites you to deposit your gold bars with them.

Oh and did I tell you: they will be stored in a segregated vault! Completely separate from all other assets!

Don't pay attention to the back door of the vault and the helipad...

Fri, 08/17/2012 - 07:28 | Link to Comment shovelhead
shovelhead's picture

Ironic, no?

Fri, 08/17/2012 - 07:33 | Link to Comment LeisureSmith
LeisureSmith's picture

You can count on gold to clear things up. And paper to cover up or paper over.

Fri, 08/17/2012 - 07:30 | Link to Comment negative rates
negative rates's picture

I still can't believe we don't have enough gold as a country to pay back foriegners of us dollars in gold at some $1600/oz when it was $40/oz when we went off the gold standard. Talk about governmental distrust and the full faith and credit of the U.S. treasury. It's an inflationary bubble that can't end well for prices around the world and finally right here at home. 

Fri, 08/17/2012 - 07:40 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

Of course we "have" enough gold at $1600/oz.  "Having" as in being buried uhhh someplace where we're like, there.

Oh you mean actual mined, refined, assayed, and cast elemental gold?  Well if THAT'S the way you WANT to look at it ... (ew, barbarian!) ... we need more like $1xxxx/xx to call it a day.  Clear? Right.

Fri, 08/17/2012 - 08:04 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

^^^slewie style comment.  props.

Fri, 08/17/2012 - 07:32 | Link to Comment Peter Pan
Peter Pan's picture

What kind of haircut will they apply to the use of gold as collateral?

 

 

Fri, 08/17/2012 - 07:49 | Link to Comment malikai
malikai's picture

I heard they brought in the flowbee guys to consult on that.

Fri, 08/17/2012 - 07:35 | Link to Comment resurger
resurger's picture

Indeed.

Fri, 08/17/2012 - 07:44 | Link to Comment PaperBear
PaperBear's picture

Silver Update 8/15/12 Sleeping Sentinels

www.brotherjohnf.com/archives/62224

You should all read some shocking red flags, no less than seven, from the court ruling on Sentinel Group’s 2007 embezzling $500M of customer’s segregated funds.

You will read that the court refers to the defraud victims at different times as customers, creditors and investors – confusing, eh ?

“Sentinel Management Group http://en.wikipedia.org/wiki/Sentinel_Management_Group#cite_note-7 – “Investments included short-term commercial paper, foreign currency, investment-grade bonds and Treasury notes, according to the Web site. They oversaw approximately $1.6 billion.”

“CEO and Head Trader of Bankrupt Sentinel Management Indicted (Alleged $500 Million Fraud) http://www.fbi.gov/chicago/press-releases/2012/ceo-and-head-trader-of-bankrup... - “allegedly misappropriated securities belonging to customers by using them as collateral for a loan that Sentinel obtained from Bank of New York Mellon Corp. (BoNY) that was in part used to purchase millions of dollars worth of high-risk, illiquid securities not for customers”

The alleged crime took place before the bankruptcy in August 2007 but the fraud indictment was handed down on June 1, 2012.

NEARLY FIVE YEARS LATER.

“Futures Commission Merchants http://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/fcmibfilingreportreqs

“IN RE: SENTINEL MANAGEMENT GROUP, INC. volo.abi.org/in-re-sentinel-management-group-inc/opinion/download”

“Sentinel’s customers weren’t typical investors; most of them were futures commission merchants (FCMs), which operate in the commodity industry akin to the securities industry’s broker-dealers. In Sentinel’s hands, FCMs’ client money could, in compliance with industry regulations governing such funds, earn a decent return while maintaining the liquidity FCMs need. “Sentinel has constructed a fail-safe system that virtually eliminates risk from short term investing,” proclaimed Sentinel’s websitein 2004.” 

Red flag #1 - virtually eliminates risk vs Sentinel Group went bankrupt.

“To accept capital from its FCM customers, Sentinel had to register as a FCM, but it did not solicit or accept orders for futures contracts. Sentinel received a “no-action” letter from the Commodity Futures Trading Commission (CFTC) exempting it from certain requirements applicable to FCMs.”

Red flag #2 – exempting it from certain requirements.

“The court found that Grede “failed to prove that Sentinel made the Transfers with the actual intent to hinder, delay or defraud its creditors.””

Red flag #3 – failed to prove … (de)fraud vs FBI’s fraud indictment.

“Sentinel’s preference of one set of creditors (the bank, whose funds paid off the repo counterparties) over another (its customers)”

Red flag #4 – the court claims Sentinel’s counterparties and customers are both creditors.

“Perhaps the bank should have known that Sentinel violated segregation requirements, but as the district court found, “such a lack of care does not rise to the level of the egregious misconduct necessary for equitable subordination.””

Red flag #5 – see how far you get with this defence when receiving stolen goods.

“the court took account of the problematic aspects of the testimony, and explained that while it did not always believe the bank officials, the discredited testimony did not lead the court to believe the witnesses were covering up knowledge of Sentinel’s “pre-collapse mess.” Grede, 441 B.R. at 893-94 (“Lies are sometimes told, as they were here, not to help the employer in a lawsuit, but rather to help the employee’s career.”). Instead of finding that their testimony justified a finding of egregious bank behavior, the district court essentially found that the bank officials were such artless liars that they couldn’t have been concealing deliberate wrongdoing. Instead, the bank officials were simply trying to cover up their own incompetence.”

Red flag #6 - another ‘lone gunmen’ theory vs a conspiracy at large.

“Grede seeks to retroactively impose a requirement for the bank to ensure Sentinel maintained appropriate segregation levels and argues that its failure to do so justifies a finding of inequitable conduct. For support, Grede cites a CFTC letter that prohibits pledging of customer securities for debts regardless of location. Even if we accepted the letter as authoritative, the bank’s failure to somehow ensure segregation compliance would not support the required level of egregious behavior.”

Red flag #7 – questioning CFTC’s authority vs CFTC is vested with the authority in such matters.

23m40s BrotherJohnF concludes “The court cites three groups of investors that are regulated, there’s the commodities investors, there’s the bond investors and there’s the stock investors and they are regulated by different groups. And the upshot of all of this is that commodity investors are not protected. Now why is this happening ? It’s my opinion that the reason why this is happening, of course goes back to the original theory is that silver and gold and other commodities but specifically, because nobody’s going to store a barrel of oil, specifically the metals are investments that can taken physical delivery of, you can actually take delivery of your investment  Now, the futures markets are the markets that allow us to take delivery of these commodities. Commodities are going to be the Achilles heel, specifically gold and silver and more specifically silver, they’re going to be the Achilles heel of the banking system as people will flee from paper assets and invest in hard assets. So, what we’re seeing here in my opinion is another blow to the CFTC, the regulator of the commodities markets and the commodities markets themselves and the purpose is to discourage investors from investing in these markets because these are the markets that can break the paper money system and if we make the regulations so broken, the enforcement so broken, the companies so corrupt that all investor confidence is lost. And of course we’re not going to see the millionaires and billionaires flood into the futures markets where they can actually take delivery of a real asset but they’ll be contained and be forced into the paper assets and of course that’s where they want their money. They do not want their money in physical silver and of course that’s the reason why you want your money in physical silver because ultimately that’s the only thing that isn’t somebody else’s debt obligation and when the whole thing blows up you’re going to find out you’re last in line.”

 

Has Tyler Durden posted anything on this ? Is he asleep or something ?

Fri, 08/17/2012 - 07:51 | Link to Comment Winston Churchill
Winston Churchill's picture

Have you ?

Article  yesterday.

Fri, 08/17/2012 - 08:23 | Link to Comment holdbuysell
holdbuysell's picture

Reuters article from Aug 9:

Sentinel ruling may hurt MF Global clients Thu, Aug 09 20:18 PM EDT http://mobile.reuters.com/article/idUSBRE87900T20120810?irpc=932
Fri, 08/17/2012 - 08:20 | Link to Comment Pegasus Muse
Pegasus Muse's picture

They discuss the 7thCircuit Court decision on Sentinel and the implications for your money deposited at brokerages/banks/etc .  

Ann Barnhardt - A Matter of Record

http://www.youtube.com/watch?feature=player_embedded&v=GwKGNO59pqA

=====

Warren Pollock and Ann Barnhardt On the Increased Risk to Customers In the US Financial System

"The way I read it was that basically you no longer have property rights. If you have your money in any (US) financial institution, you now have no property rights because in a crisis situation a bankruptcy judge now has the right to say that all of this speculation (by the banks and brokers) takes precedence over your savings."

--W. E. Pollock

http://jessescrossroadscafe.blogspot.com/2012/08/this-is-interesting-discussion-on.html

Fri, 08/17/2012 - 10:42 | Link to Comment spanish inquisition
spanish inquisition's picture

Been reading up on Sentinel et al.... Shouldn't they release Bernie Madoff? I am not sure what he did is a crime anymore.

Half the people in prison for fraud have a shot at getting out. If their intent was to keep the company alive and they were sure they were going to pay every comingled penny back. I mean it was just bad luck. I am expecting alot of appeals are being written right now.

Edit: Trying to look at it from the other side. If you have a business loan with a bank, is the bank concidered a sophisticated investor? That might help a few folks in prison. By legalizing crime for the TBTF, it will trickle down and help the small timers.

Fri, 08/17/2012 - 08:14 | Link to Comment El
El's picture

Is there any material difference between a segregated customer funds account and an escrow account? Is there no fiduciary duty here at all? I am truly baffled by this ruling.

Let an attorney comingle funds and see what happens.

Fri, 08/17/2012 - 08:47 | Link to Comment Confundido
Confundido's picture

Yes, Tyler posted abt this.

Fri, 08/17/2012 - 07:49 | Link to Comment youngman
youngman's picture

Another door opening for gold....gold here..gold there..pretty soon we have a back up currency

Fri, 08/17/2012 - 07:54 | Link to Comment “Rebellion to t...
“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

When MF Global imploded, all collateral held in vault was absconded.  Clearing firms, I-banks, clearinghouses actually prefer hard assets in their possesion, in addition to the traditional fiat.

Fri, 08/17/2012 - 08:01 | Link to Comment Inthemix96
Inthemix96's picture

CME taking gold for colateral eh?

Clever fuckers, do they know something us bitchez dont?  They seriously do not think people are that fucking stupid do they?  The wonders never cease.

Fri, 08/17/2012 - 09:08 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

Yes, they do... and some people are...

"They seriously do not think people are that fucking stupid do they?"

Fri, 08/17/2012 - 08:01 | Link to Comment orangegeek
orangegeek's picture

Almost all gold that has been discovered over the centuries has been preserved.  We continue to accumulate masses amounts of gold.  Let's call this....supply.

 

The value of the Euro is likely to continue decline (ref: defaulting countries) which causes the US Dollar index to rise. 

 

When the US Dollar index rises, the value of gold, denominated in US Dollars, will likely....wait for it.....fall.

 

http://bullandbearmash.com/chart/spot-gold-daily-august-06-2012/

Fri, 08/17/2012 - 09:12 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

"When the US Dollar index rises, the value of gold, denominated in US Dollars, will likely....wait for it.....fall."

It all depends on how long the paper PMs game can be played and how long the SE Asians, Indians, Mid Easterners, et al, continue to hold a solid floor under the PMs.

 

Fri, 08/17/2012 - 08:01 | Link to Comment Seize Mars
Seize Mars's picture

This breaking news just in, Generalissimo Francisco Franco is still dead.

Fri, 08/17/2012 - 08:19 | Link to Comment vertexa
vertexa's picture

Spain's bank bad loans hit record high in June 

Spanish banks' bad loans rose to a record high in June as assets tied to the country's deflating property market soured further, keeping the financial sector at the forefront of investor concerns about the country's fragile economy. In the same month that Spain sought a European bailout of up to 100 billion euros for its struggling lenders, their non-performing loans rose to 9.42 percent of outstanding portfolios from 8.95 percent in May, central bank data showed on Friday. Loans that fell into arrears increased by 8.4 billion euros ($1.03 billion) to 164.4 billion euros. Bad loan rates have risen ... 
FULL STORY:

http://www.cnbc.com/id/48699709

Fri, 08/17/2012 - 08:27 | Link to Comment eddiebe
eddiebe's picture

I would say this is a major concession on the part of paper bugs and a minor victory for gold bugs.

Fri, 08/17/2012 - 08:27 | Link to Comment Blopper
Blopper's picture

Smart trader/investor would not use gold as collateral, regardless of the terms and conditions.

Fri, 08/17/2012 - 08:40 | Link to Comment nathan1234
nathan1234's picture

A fool and his Gold are soon parted

When you keep the Gold with anyone else.

Fri, 08/17/2012 - 09:16 | Link to Comment Dr. Gonzo
Dr. Gonzo's picture

"Gold continues to be money." Sad part of this headline is most Americans would read it and truly think that the idea of gold being used for money is a recent development and not a concept that's been firmly in place since before Ancient Greece...This morning CNBC anchors were complaining about how stupid American public school kids are today. Maybe they should do a little teaching about gold on their show to educate their viewers instead of pumping Facebook and Groupon get poor quick schemes to them.

Fri, 08/17/2012 - 09:19 | Link to Comment Munkey
Munkey's picture

It's interesting that this announcement comes after David Morgan's Kitco interview stating that those who have the physical gold are holding onto it very tightly. Desperate times, desperate measures. Just sayin.

Fri, 08/17/2012 - 09:37 | Link to Comment spanish inquisition
spanish inquisition's picture

If you are a country, down to using gold as collateral in a fiat system, because everything else of value is hocked..... it's over.

Save the gold and default on the rest, you are going to need it to back your new currency. Or continue forward to receive your shackles.

Fri, 08/17/2012 - 10:32 | Link to Comment debtor of last ...
debtor of last resort's picture

The words gold&silver turn up more and more in msm. Just 1 year ago just by a few people, and a lot of people laughing about gold & silver bugs. Now it's different, more people understand how it's 'working', and change their printed derivatives for the real stuff....

How was it, first they laugh at you, et etc

Fri, 08/17/2012 - 10:41 | Link to Comment Money By Trading
Money By Trading's picture

My latest chart on the Dollar vs. the risk-on trade.  Still holding my gold miners.

http://moneybytrading.com/2012/08/16/quick-dollarrisk-trade-update/

 

Fri, 08/17/2012 - 11:03 | Link to Comment Balmyone
Balmyone's picture

We all know that U.S. Treasuries have been selling off hard. Are you also aware that gold and silver miners are up as much as Treasuries are down. Yes, the market has been rising, as have commodities. But the scale of the move in Treasuries is only matched by the move in gold and silver miners.

 

Wed, 08/22/2012 - 10:59 | Link to Comment Silversem
Silversem's picture

Gold will start a new leg up soon. I am certain of that. I trade gold using cfd's or as we say in Dutch: handelen in goud

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