Tuesday, February 8, 2011

JP Morgan to Start Accepting Physical Gold as Collateral

I heard this on the news today, below is an article from usnewssource.com.  But first, many probably do not know, but JP Morgan is just as bullish on the precious metals as any bull out there, they are long on various mining stocks and ETF's. Many people think that because JP Morgan was short Silver on the Comex, they want both Gold and Silver to go down. They were shorting Silver on the short term to make some quick money. Many of the short positions came from their acquisition of Bear Sterns.

 One example is that they are a holder of Gammon Gold (GRS).

Don't let the name Gammon Gold fool you as they produce more Silver than Gold as they mined 5.165 million ounces of Silver in 2009 compared to 136,309 ounces of Gold.  Totals for the 2010 year will be out soon.

 JP Morgan is also a Major holder of GLD, the spider ETF.

Here is the usnewssource.com article:
Gold is – apart from being a safe haven against the declining value of the dollar and inflation – on its way to be seen as a valid currency, after JP Morgan announced on Monday that it would begin accepting physical gold as collateral for some transactions.
JP Morgan Chase said it will accept physical gold as collateral from counterparties against securities lending and repurchase obligations (repos), since a growing number of its customers are using gold as a hedge against inflation. JP Morgan’s role is to act as a clearing bank between borrowers that want to raise secured funding and lenders. In a tri-party repurchase obligation agreement, the borrower attaches a value to securities it owns, hands over those securities as collateral to a third party in exchange for money. The seller of the security pays the lender a rate of interest for the use of the money.
JP Morgan is clearly trying to capitalize on non-income producing gold sitting idle in warehouses. John Rivett, collateral management executive for JP Morgan Worldwide Securities Services, said that “Many clients are holding gold on their balance sheets as an inflation hedge and are looking to make these assets work for them as collateral. By combining our collateral management and vaulting capabilities, we provide clients with greater flexibility in how they mobilize collateral.”
Gold as collateral has been allowed on the London CME since October 2009. Since November 2010, the Intercontinental Exchange Inc. (ICE) has accept the precious metal as collateral on all credit default swaps and energy transactions.
The World Gold Council and the Industrial and Commercial Bank of China (ICBC) have teamed up on an investment product called the ICBC Gold Accumulation Plan. Basically people can buy $42 worth of gold a day and already one million accounts have been opened since the program has launched.

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