JPMORGAN said yesterday that GOLD will be an acceptable pledge of collateral, even in repo operations. This revelation isn’t new as the CME GROUP and other clearing entities arranged for this last year.
What’s most interesting, though, is what one of NOTES’ readers brought up (SMC): That last year, JPMORGAN announced that it would be building and reopening GOLD VAULTS for storage in New York. Now it seems that somebody at JPMORGAN has discovered a great synergy. Allow the borrowers to pledge the GOLD as the bank holds the metal in its vaults, while even earning a storage fee and maybe getting use of the GOLD for lending purposes. Moragn even goes so far as to not allow the GOLD ETFs for collateral so it really solidifies its position.
GOLD seems to be developing an enhanced position in global financial markets, which will add to its role as a currency and not just a commodity. If the world’s BANKERS are paying attention, perhaps they will be able to find their way to using the GOLD hoard of the ECB and IMF to securitize the BONDS of the PIIGS and other stressed borrowers. If JPMORGAN deems GOLD to be acceptable as good collateral, shouldn’t the WORLD’s lending bodies put the barbarous relic to work by utilizing it to secure lowering borrowing costs?
The banks need to make use of whatever assets they possess to help provide the world’s needed liquidity. Allowing the GOLD to sit dormant is a terrible use of a potentially great form of security. If the world’s major lending institutions won’t make GOLD-BACKED BONDS available, it raises the question of what are they fearful of. The financial community hears on a regular basis that GOLD has little intrinsic value and it is only for whack jobs, so the world’s model builders and their disciples should have no problem feeding the ducks as they are quacking. Failure to securitize the GOLD is a major dereliction of the IMF, ECB,and U.S. Treasury’s fiduciary responsibility. Use GOLD to lower borrowing costs and force the issue of fiscal responsibility at the same time. JPMORGAN has opened the gates to further discussion and it VAULTS them to the top of the banking tables.
The three-year U.S.Treasury auction was poorly received and it pushed rates higher across the entire curve. More importantly, the 2/10 steepener pushed out to 289-plus. Even with the move higher in interest rates, the S&Ps and DOW finished higher. The financial markets are sending the FED a message: enough on the QE. If we believe BERNANKE, the FED will pursue QE2 as unemployment remains far too high. The EQUITY markets are the recipient of the FED’s policy as paper assets with some dividend return are being bid to levels that the underlying economy will find difficult to sustain. Value investors seek out quality assets for a “fair” price and this will continue as long as the FED maitians that “YOUR CASH AIN”T NOTHING BUT TRASH.”
Tags: 3-Year Treasury, Bernanke, bonds, CME Group, ECB, equity, Fed, Gold, Gold-backed bonds, IMF, JPMorgan, PIIGS, QE2, vaults
February 9, 2011 at 5:47 am |
I remember a story over a year ago where the established NYC/NJ vaults were booting out “smaller” depositors of gold/silver to make room for the larger customers and adding the extra space needed by expanding inventories of ETF’s.
>f JPMORGAN deems GOLD to be acceptable as good collateral, shouldn’t the WORLD’s lending bodies put the barbarous relic to work by utilizing it to secure lowering borrowing costs?>
I believe a few will. Perhaps the $US has been able to hold up better than expected considering the policy of debasement the FED has been pursuing to keep the “too big to fail”s solvent, keep Treasury borrowing coasts low, and bring back the Phillips Curve for good measure. Last I looked US gold stocks were over 8100 tons with Germany and France coming in at about 2400 tons each. Those with less than 500 tons(China, Russia) have been putting a bid in gold the during the entire bull run. Unlike our British allies, at least we kept ours.