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Is The CME’s 150% Hike In Gold Collateral Just A Ploy To Increase Amount Of Legally Confiscatable Gold?

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Zero Hedge
Oct 4, 2011

Earlier today the CME did something quite contrarian to its nature: it validated gold by a factor of 150%, when it announced that the amount of gold bullion that customers can post as collateral is increasing from $200 million to $500 million. To confused NYU adjunct economics professors this means that the credibility of gold in the global monetary system just increased by more than ever before. Regarding the stated reason for this move “the Chicago-based company said that the change will allow market participants to better manage their risk and to take advantage of lower gold lease rates.” As for the real reason for this surprising move we are unsure: whether it is due to an actual shortage of dollar dollar bill margin as collateral or some other reason we don’t know. In fact, we are confident the CME will likely hike gold margins once again as soon as gold approaches $1900 shortly. But at least it has finally tipped its hand as to how even the biggest US futures exchange feel about the yellow metal. Of course, the end result is that should gold, just as cash, be used to collateralize stupid transactions which result in margin calls, the collateral will be confiscated. Therefore, one would be forgiven if one assumes that this is merely a ploy to more than double the amount of perfectly legally confiscatable gold in the capital markets. Which of course would mean that someone, somewhere would be interested in procuring far more physical gold than is already in possession. But that’s just crazy talk. Why would one want gold, especially at these near record prices, when one can have glorious spam?

From Reuters:

“I think that it really shows that people in the gold market want to use gold more efficiently,” Harriet Hunnable, CME Group’s managing director of metals products, told Reuters.

“We are very comfortable with the amount of gold that we hold as collateral,” Hunnable said.

Placing physical gold as collateral is highly effective for market participants in a low interest-rate environment, she said.

Hunnable said that CME Group has ensured there is enough liquidity in the physical gold market for its customers to provide bullion to the exchange as collateral.

Analysts welcome the move because investors could now use physical gold instead of just cash to meet margin requirements of other market products.

“It gives gold additional credibility as the alternative currency. It might also lessen liquidation of gold, as it is now used as a margin vehicle so participants are not actually liquidating,” said Bill O’Neill, partner of commodity investment firm LOGIC Advisors.

Look for the Shanghai Gold Exchange to proceed with an identical action, as Exchanges around the world scramble to put far more physical gold collateral at risk in margin accounts, which then put the fate of said physical gold at the mercy of paper market manipulation, a game which is always won by the casino. Said otherwise: all the makings of a perfectly legitimate, and perfectly legal gold confiscation scheme.

This article was posted: Tuesday, October 4, 2011 at 3:29 am





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