Monday, February 7, 2011

HOT Gold Game Changer: JPMorgan Accepts Bullion as Money

Janet Tavakoli emails:
J.P. Morgan Chase & Co. announced on February 7, 2011 that it will accept physical gold as collateral for investors that want to make short-term borrowings of cash or securities.

Presenting gold to satisfy demands for performance bond collateral has been allowed on the London CME in a limited way since October 2009. As of November 22, 2010, the Intercontinental Exchange Inc. (ICE) has accepted gold bullion as collateral on all credit default swaps and energy transactions.

I don't recall the G-20 declaring gold a new currency. Yet JPMorgan Chase and a couple of financial market exchanges have effectively declared that gold is an alternative currency.

Since gold is now accepted collateral, there will always be a way to borrow against one's gold position, so speculators that create leveraged long gold positions can always find a way to fund margin calls. The Volcker bubble deflator is no longer relevant.

Janet has a full article at Huffington Post here, on how banks may use the new "gold as money" as a way around Frank-Dodd regulations. She writes:
The Dodd-Frank "financial reform" bill doesn't address customized over-the-counter credit default swaps, and the bill doesn't do anything at all to reign in speculation in the currency markets or the commodities markets.

So expect more mayhem from banks as they come up with creative ways to use gold to get around burdensome regulations. She has a point, but I am looking at this mostly from the perspective of a person holding physical gold, and what it means is that more bankers and traders will want to hold gold. Translation a higher price for gold.

BTW: Following her column Janet writes:
Disclosure: I currently own some long positions in precious metals including gold.

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors.  Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business.  Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008).  Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street  (Wiley, 2009). See her books here.


  1. I can just see the arguments now on why the US will need to outlaw private ownership of gold.

  2. I see this as JPM desperate for physical Gold to keep up the US govts price suppression scheme. JPM hates Gold and will mobilize all gold they touch as ammo in London to cap mkt. GATA folks is what you need to look into.