LCH.Clearnet Accepts ‘Loco London’ Gold As Collateral Next Tuesday
Our friend Stephen Flood's GoldCore.com writes this morning:
LCH.Clearnet Group Ltd. said it will accept loco London gold as collateral for margin-cover requirements on OTC precious-metals forward contracts and on Hong Kong Mercantile Exchange precious-metals contracts starting Aug. 28. Loco London gold are London Good Delivery Bars (roughly 400-ounce or 12.5 kilograms gold bar) held with LBMA members within the London bullion clearing system.
The push to use gold as collateral follows similar steps from a growing number of exchanges and banks to increase the use of gold as an acceptable deposit and collateral reinforcing gold's renewed status as a safe haven currency.
Intercontinental Exchange Inc. (ICE) also has allowed the use of gold as collateral.
LCH.Clearnet limited the amount of gold that could be used as collateral to no more than 40% of the total margin cover requirement for a member across all products and at a maximum of $200 million, or roughly 130,000 troy ounces, per member group.
The move follows the initiative of the World Gold Council, who last year submitted evidence to the Basel Committee for gold to be included in banks’ ‘Tier 1’ assets by European banking regulators, recognising gold’s growing relevance as a high quality liquid asset.
David Farrar, Director, LCH.Clearnet said at the time that “market participants want greater choice when it comes to assets that can be used as collateral. Gold is ideal; as an asset it typically performs well in times of financial stress, remains liquid and has a well established pricing mechanism.”
Gold Prices/Fixes/Rates/Vols – (Bloomberg)
We pointed out the importance of this development last year but it was ignored by most of the media and even much of the blogosphere.
The CME and LCH.Clearnet both allowing gold bullion as collateral is extremely bullish for the gold market.
With counterparty and sovereign risk remaining elevated, gold is no longer being seen simply as a commodity. Rather, it is increasingly viewed by market participants as an important asset and a currency with no counterparty risk.
We are gradually seeing the remonetisation and indeed the ’financialisation’ of gold, as gold is gradually being reincorporated into the modern financial and monetary system.
This should result in the coming months and years in markedly higher prices than those of today.
Keynes’s ‘barbaric relic’ is becoming less barbaric by the day. However, the man on the street remains completely unaware of this trend and continues to sell gold (jewellery) rather than buy gold (bullion) as clearly seen in the international phenomenon that is 'cash for gold'.
Huge developments in the gold market such as this continue to be ignored by non specialist financial media and its implications not realized by many so called experts. The "experts" and public consensus is that gold is a risky volatile commodity and may even be a “bubble".”
The truth, which is being seen more clearly by the day, is that gold is actually a finite currency and the safest form of money in the world.
To read the entire blog post follow the link below:
August 21, 2012 (Source: GoldCore)
