Thursday, June 3, 2010

JPM Does This With Cash But Not Gold/Silver? Give Me A Break...

JP Morgan was nailed in the UK for commingling client cash with bank cash in its futures and options business.  Here's the link from Clusterstock.com:  $48 Million Fine for Commingling.  Please note that, as the report points out, the biggest problem with a big bank commingling assets in a general bank account is that client assets are in jeopardy in the event of insolvency.

This is exactly what is going on with the fractional bullion depository system at the big bullion bank depositories.  With depositories, you have "allocated" and "unallocated" bullion accounts.  If you read through the GLD prospectus (HSBC is the custodian), you'll see that it is specifically stated that one of the risks to the shareholders of the Trust is the possibility that HSBC commingles the gold (in fact, there are times when the bullion becomes commingled when it is being moved around).  In the event of insolvency, the "allocated" account, which would be analogous to a "client" account, is at risk for becoming a general unsecured creditor of HSBC if allocated and unallocated bullion become commingled.  The reason being is that the creditors will challenge custody if bullion that should be sitting in an allocated bin is sitting in the unallocated bin.  The prospectus specifically warns of this risk. 

For the record, JP Morgan is the Custodian for SLV.  As such, the whole world, or at least that which is paying attention to the potential fraud embedded in these paper bullion ETFs, has been looking with extreme prejudice at JPM's custodianship of SLV and JPM's extreme paper short in silver on the Comex.

The bottom line here is that where there's smoke, there's usually fire.  JPM was nailed for a record fine in the UK for commingling cash accounts.  Anyone who thinks it doesn't happen in bullion accounts at these big banks is either naive, and idiot or both.  You better think again if you think your investment in GLD, SLV, IAU or any of these bullion investment products sold by the likes of Kitco, Monex et al is really an investment in bona fide physically allocated bullion.

10 comments:

  1. These people do what they want, when they want with impunity. That's why they can sit in a London pub and boast about it while getting drunk.

    White punks on dopamine.

    Joe M.

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  2. Scary stuff for sure Dave.....I take nothing but physical delivery.

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  3. What about the safety of DGP...Deutsche Bank AG DB Gold Double Long...which is based on futures as I understand it???

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  4. Dude, DGP is for trading purposes only. Don't play DGP as an investment. Use it to market time and index the price of gold. Leveraged ETF's naturally decay toward zero. That's why SRS and FAZ keep doing reverse splits.

    If you want to leverage bona fide custodian physical gold, buy PHYS or GTU on margin.

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  5. Looked at the USD today Chico?

    Oh, but, wait, hold on, it won't hold right?

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  6. Hey man. For me forecasting the dollar is like horseshoes and handgrenades. How far off do you have to be before you lose? I thought uncle buck would for sure rollover at 85-86. So I'm wrong by less than 2% so far.

    The dollar fell 41% from its peak in 2001 to its bottom at 71. That's a collapse. At 87 it's rallied back 22% from its bottom but it's still 28% off of its 121 high.

    Tell ya what. For the dollar to go back to 71 would require an 18% drop. Conversely, an 18% move higher would take it to 102. Which side do you want to take?

    For me it doesn't matter because either way gold will do a moonshot. The US gold cartel can bombard the Comex with as much paper gold as it wants, but if the dollar shoots up to 102, it means the rest of the world is buying as much gold as they can get their hands on and they don't care what they pay.

    Have I been wrong about the dollar for a few points? Sure, but I am not betting any money on my view there? Have I been right about gold since around $280? Yes, and I have 99% of my money in gold/silver/mining stocks since 2001.

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  7. "For me it doesn't matter because either way gold will do a moonshot. The US gold cartel can bombard the Comex with as much paper gold as it wants, but if the dollar shoots up to 102, it means the rest of the world is buying as much gold as they can get their hands on and they don't care what they pay."

    I have never heard it laid out that way.

    What a beautifully succinct piece of prose, worthy of repetition, citation, and it's own blog post IMNSHOP.

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  8. LOL. Thanks for the feedback Dave. Where do you live in NYC? I lived for 9 years at 89th and 3rd and all around the upper east/upper west for 6 years b4 that.

    If I moved back there, I'd probably move to the lower east side.

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