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Is Gold Money? LCH Accepts Shiny Yellow Metal As Collateral

Tyler Durden's picture


Whether it is because the CME just did it; or it's all their clients have left; or Gold volatility is lower than EURUSD volatility (9.0% vs 9.6% in last 3 weeks); or they see the painting on the wall of Draghi's grand-plans, the LCH-Clearnet just announced that as of August 28th, unallocated gold will be accepted as collateral for margin cover purposes. This now means all the major exchanges accept worthless barbarous relics as collateral - as well as worthless fiat paper 'money'.


Gold as Collateral Acceptable for Margin Cover Purposes

From 28 August 2012 unallocated Gold (Loco London) will be accepted by LCH.Clearnet Limited (LCH.Clearnet) as collateral for margin cover purposes. 

This addition to acceptable margin collateral will be subject to the following criteria;

• Available for members clearing OTC precious metals forwards (LCH EnClear Precious Metals division) or precious metals contracts on the Hong Kong Mercantile Exchange. Acceptable to cover margin requirements for all markets cleared on both House and ‘Segregated’ omnibus Client accounts.

• Daily valuation, with an initial haircut of 14% applied.

• Concentration limits will be applied as follows;

o lodgement not to represent more than 40% of total margin requirement of participating members across all products, including for contingent variation margin (but not realised variation margin), applied at a legal entity sub account level. 
o a maximum lodgement limit per member group of USD 200m (currently approximately 130,000 troy ounces).

• LCH.Clearnet will make an accommodation charge of 20 basis points (bps) on utilised collateral amounts based upon member defined usage ordering rules. Costs incurred from the custodian will be passed on to clearing members on a pro rata basis and based on the value of the collateral lodged. 

• Members who are eligible and wish to lodge gold for margin cover purposes will be required to submit an executed Gold as collateral ‘charge’ document for the ‘House’ and/or ‘Client’ accounts together with supporting paperwork. Please contact the Membership Team to request the relevant legal documentation needed for approval to lodge gold as collateral.

• Procedures and account details can be found in at the link below prior to the live date and thereafter in Section 4 – Collateral, of the LCH.Clearnet Ltd Rulebook. http://www.lchclearnet.com/rules_and_regulations/ltd/proposed_rules.asp

• For further details of acceptable margin collateral please see the following link, which will be updated to reflect the addition of Gold Bullion from 28 August 2012. www.lchclearnet.com/risk_management/ltd/acceptable_collateral.asp

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Tue, 08/21/2012 - 14:43 | 2724765 malikai
malikai's picture

If anyone bites this bait, wow.

Enjoy the coming margin calls.

Tue, 08/21/2012 - 14:47 | 2724780 knukles
knukles's picture


LOL ....

Talk about shit disappearing with no recourse.
Ah, the fair City of London

This is desperation, deluxe
But then again, is not desperation the English way?

Tue, 08/21/2012 - 14:48 | 2724799 GeezerGeek
GeezerGeek's picture

Unallocated. Because TPTB know the allocated gold has been vaporized already.

Tue, 08/21/2012 - 14:50 | 2724805 malikai
malikai's picture

One man's unallocated is another man's rehypothecated.

Tue, 08/21/2012 - 14:50 | 2724804 youngman
youngman's picture

I wonder if 100 firms can use the same brick of gold to collateral.......that is the London way

Tue, 08/21/2012 - 16:36 | 2725222 Alea Iactaest
Alea Iactaest's picture


Wed, 08/22/2012 - 00:24 | 2726319 MarcusLCrassus
MarcusLCrassus's picture

I thought it was quite despiration.  

Tue, 08/21/2012 - 14:53 | 2724819 ACP
ACP's picture

Yeah, what a novel way of stealing gold. I wonder what they have in mind...I wonder...

Tue, 08/21/2012 - 15:01 | 2724847 Confundido
Confundido's picture

Weird...the Canadian dollar has been retracing all along the hike in gold....can someone offer an explanation?

Tue, 08/21/2012 - 15:20 | 2724918 Mark Carney
Mark Carney's picture

Confucious says "Fawk, I give up with this"

Tue, 08/21/2012 - 21:35 | 2725987 jez
jez's picture

Somebody at CNBC really ought to tell LCH Clearnet that you can't eat gold.

Tue, 08/21/2012 - 14:43 | 2724767 Hype Alert
Hype Alert's picture

Makes a lot more sense to accept gold than one's and zero's!

Tue, 08/21/2012 - 15:01 | 2724846 Pseudo Anonym
Pseudo Anonym's picture

binary ones and zeros, no?

Tue, 08/21/2012 - 15:06 | 2724872 knukles
knukles's picture

No, The Count singing one of his songs on Sesame Street for Christ's sake.
About equal value...

Tue, 08/21/2012 - 14:44 | 2724775 SeverinSlade
SeverinSlade's picture

A lot of interest lately in this barberous relic.  It must be tradition.

Tue, 08/21/2012 - 19:16 | 2725627 ZeroSpread
ZeroSpread's picture

Tradition is to carry on the flame, not worshiping the ashes. What irony if out of EURUSD's ashes a new GLDstandard rises... 

Tue, 08/21/2012 - 14:45 | 2724781 TonyCoitus
TonyCoitus's picture

Gold Bitchez, Gold!

Tue, 08/21/2012 - 14:46 | 2724784 Dr. Engali
Dr. Engali's picture

Yeah sure...I'll be letting them hold my gold for collateral so they can rehypothecate it just before it's vaporized.

Tue, 08/21/2012 - 15:01 | 2724848 XitSam
XitSam's picture

They can have my gold whey they pry it out of the mud at the bottom of Lake Feneketlen

Tue, 08/21/2012 - 14:47 | 2724785 Vincent Vega
Vincent Vega's picture

They will hold my gold for me as collateral!? Gee whiz what a swell group of folks. I bet they'd even give me a receipt printed on fancy paper.

Tue, 08/21/2012 - 15:06 | 2724879 knukles
knukles's picture


Tue, 08/21/2012 - 14:47 | 2724792 AL_SWEARENGEN
Tue, 08/21/2012 - 14:47 | 2724794 hampsterwheel
hampsterwheel's picture

Paper gold or physical gold?


Tue, 08/21/2012 - 14:48 | 2724798 youngman
youngman's picture

I doubt it will work to well as collateral...but as a payoff it might....do they accept my shares...I don´t have any by the way...of the ETF GLD....which we all know does not have any gold....or just some allocated stuff in a JPM warehouse???

Tue, 08/21/2012 - 14:59 | 2724820 Yen Cross
Yen Cross's picture


"Gold as Collateral Acceptable for Margin Cover Purposes", Daily valuation with a "14% " HAIRCUT!  f..king CROOKS!
Tue, 08/21/2012 - 16:12 | 2725119 OldE_Ant
OldE_Ant's picture

Hell just send your gold over to the waaay secure Ant Vaults, and we will only give you a 10% hair STYLE FOR FREE.   Hurry now storage space is LIEMITED.

End of Line

Tue, 08/21/2012 - 14:56 | 2724823 JohnKozac
JohnKozac's picture

No wonder Chinese are loading up on undervalued Gold. Their stock market ha sbeen poor and Housing is a Super-Bubble:


The Chinese Stock Market Tumbles To A Post-Crisis Low

The Shanghai Composite closed down 0.38 percent on Monday, to a three-year low. This came after rise in Chinese home prices caused investors to speculate that Beijing would announce more property curbs to maintain a "firm grip" on its real estate market. 

Moreover, a newspaper run by the People's Bank of China said the central bank does not intend to cut reserve requirement ratios (RRR) in the near-term. This also disappointed markets that were looking for more interest rate and RRR cuts and easing following disappointing economic data.

In fact, the Shanghai Composite has diverged vastly from the S&P500. Global Macro Monitor points out "the Shanghai is down 39.2 percent from its post crash high while the S&P500 is up 42.3 percent over the same period"



Tue, 08/21/2012 - 15:13 | 2724903 onebir
onebir's picture

Also their bank accounts yield less than inflation. And the banks are insolvent... And the biggest cash denomination of the RMB (100RMB) is worth $16, and gets mouldy if you keep wads of them in a drawer in some parts of the country. :P

Tue, 08/21/2012 - 19:44 | 2725700 SAT 800
SAT 800's picture

The Shanghai Composite has diverged vastly fromt he S&P 500; on the other hand, the S&P 500 has diverged vastly from reality.

Tue, 08/21/2012 - 14:56 | 2724825 e-man
e-man's picture

I wonder how quickly the collateral gets rehypothecated and ends up in the vaults of some poor victimized bank...

Tue, 08/21/2012 - 15:00 | 2724842 hannah
hannah's picture

YES...!....now i can buy more FB and short AAPL...WINNING.

Tue, 08/21/2012 - 15:00 | 2724844 Confundido
Confundido's picture

It still is not money, because it can only be used to cover same metals...We need to see gold being able to be used to cover fiat. That's the catch!


Tue, 08/21/2012 - 15:02 | 2724853 YesWeKahn
YesWeKahn's picture

Wait, Bernanke told the congress that Gold isn't money. Who is right? Did Bernanke lie to the congress? That's the punishment if he is proven to have lied to the US congress?

Tue, 08/21/2012 - 15:10 | 2724891 knukles
knukles's picture

Congress and the Bernak are ALWAYS right.  Nobody in Congress or the Fed has or will ever lie.  If anybody who is not rich, powerful or connected ever lies to Congress, and those are the only people who do, they will be used for target practice with all the new ammo they're buying.

Tue, 08/21/2012 - 15:02 | 2724859 NRGIsFree
NRGIsFree's picture

Don't these people know you can't eat gold. Four out of five doctors recommend eating paper over gold.

Tue, 08/21/2012 - 19:46 | 2725706 SAT 800
SAT 800's picture

Newsflash; "Obamacare doctors reccomend eating paper." "Healthfull, and controls inflation".

Tue, 08/21/2012 - 15:04 | 2724860 drivenZ
drivenZ's picture

Wouldnt really call this a vote of confidence for gold seeing as LCH also apparently accepts spanish and Italian 10yrs at a 10% haircut. 

Tue, 08/21/2012 - 15:12 | 2724892 tmosley
tmosley's picture

>unallocated gold


Pick one.

Guess this means they get to use every step of an infinite chain of rehypothecation scheme as collateral.  Fitting, as one oz of gold can back the entire financial system, meaning that gold has an infinite value when "priced" in fiat--any fiat.


Tue, 08/21/2012 - 15:30 | 2724951 debtor of last ...
debtor of last resort's picture

<-- unallocated gold

<-- real money

Tue, 08/21/2012 - 15:15 | 2724908 Clowns on Acid
Clowns on Acid's picture

LCH is only doing this because of "Tradition".....right BenDover ?

Tue, 08/21/2012 - 15:18 | 2724914 madcows
madcows's picture

The difference between gold and money is that gold can't easily be printed or created out of thin air.  Therefore, the value of gold may swing greatly in each direction given what people are willing to pay for it, but it will never be worthless... like Federal Reserve Notes.... or Confederate Dollars.  Neat to look at, but not very good for purchasing power.

Tue, 08/21/2012 - 15:27 | 2724945 drivenZ
drivenZ's picture

this is very true but if you bought gold in the late 70's or early 80's and needed to use that gold anytime in the next 25 years your gold would have got you alot less stuff. So hopefully you have a long time horizon. 

Tue, 08/21/2012 - 15:38 | 2724981 madcows
madcows's picture

It doesn't earn interest, or return dividends or create a product to sell to people.  It's not there to EARN you moremoney.  It's value is it's inability to be worthless.  It's a way to preserve capital.

I think the US is going to default.  It's currency (the dollar) is going to plummet in value.  I'd like to preserve what I have been able to save and then transfer back into the OldDollar or NewDollar as I need it.

Tue, 08/21/2012 - 19:19 | 2725641 honestann
honestann's picture

To hell with dollars.

And I mean "new dollars", "old dollars", "pesos", "euros", "pounds", "lira" and all other forms of fiat, fake, fraud, fiction, fantasy toilet-paper.  And let me be perfectly clear.  To supposedly "link" a piece of paper to gold or other physical asset is a 100% INTENTIONAL SCAM.

The only honest, ethical way to transact with others is to exchange real, physical, valuable goods for other real, physical, valuable goods.  In practice, this includes bananas and cattle, and also silver and gold.

BOTH sides of transactions must be real, known by both parties, and have value in and of itself.

Tue, 08/21/2012 - 15:43 | 2724995 ParkAveFlasher
ParkAveFlasher's picture

Four generations, that's how long it's been since the Federal Reserve mandate was installed.

Three generations, that's how long it's been since FDR made gold possession illegal to US citizens.

Two generations, that's how long it's been since Nixon dispensed altogether with a hard currency "temporarily".  

One generation, that's a bit more than the length of the current bull run.

Tue, 08/21/2012 - 15:20 | 2724919 ruffian
ruffian's picture

A Question for Tyler or anyone with a coherent thought............

Unallocated gold is imaginary gold , at best only worth a  fractonal value to the nominal amount of the unallocated contract's par value.  LCH must know this, so why would they accept it as collaterall?



Tue, 08/21/2012 - 15:42 | 2724993 madcows
madcows's picture

I wonder, do they do Fractional Gold banking?  Do they tell every purchaser that they hold X ounces of their gold in Vaults, but couldn't possibly cover a gold deposit run?  What is their leverage, 40:1?  just Wondering.

Tue, 08/21/2012 - 15:57 | 2725042 Solarman
Solarman's picture

Sounds like allocated gold, defined by Corzine as unallocatted will find its way to their warehouses, now protected by the U.S. Federal court system.  The theft of gold can begin in earnest.

Tue, 08/21/2012 - 16:42 | 2725248 billsbest
billsbest's picture
MF'ing Justice - Jon Corzine Living Large

This has the odor of a Corzine operation, no?

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