CME gold collateral stored in London. Does that make sense?

[beefsteak]

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/07/Gold%20as%20Collateral.jpg

[beefsteak]

Text to go along with above graphic......



The CME* On Gold As Collateral And Its Unsurprising London-Based Custodian

http://www.zerohedge.com/sites/default/files/pictures/picture-5.jpg (http://www.zerohedge.com/users/tyler-durden)
Submitted by Tyler Durden (http://www.zerohedge.com/users/tyler-durden) on 07/13/2012 11:15 -0400


While the increasing use of gold as accepted explicit (not implied) collateral has long been known (http://www.huffingtonpost.com/janet-tavakoli/gold-game-changer-jpmorga_b_820005.html), especially with an increasing push by Germany to receive gold as the ultimate guarantee backstop of the only viable Eurozone extension scheme, the Redemption Fund, the other side's perspective, that of the exchanges has been missing.

Now, courtesy of a report by Harriet Hunnable from the CME, titled "Some Insights into Changes in the Gold OTC market", we can see just how the status quo views gold's rising role in a world increasingly short of good collateral (even if, as the Chairman says, it is anything but money).

And yes: that the CME has its gold custodian facilities with JPM London, where it is subsequently infinitely rehypothecatable and where it serves to restock the occasional physical shortage here and there, does not surprise us at all.http://www.zerohedge.com/news/cme-gold-collateral-and-its-unsurprising-london-based-custodian

*CME = Chicago Mercantile Exchange


beefsteak

[osoab]

Hey beefsteak, is this gold held in LME vaults?

[Horn]

http://www.mrsciguy.com/sciimages/longitude1.jpg

[beefsteak]

What exactly is in LME vaults is beyond my ken, osoab.

However, as if on cue, this Sunday morning's London The Telegraph provides some corollary insight...

Like a lamb London surrenders London Metal Exchange

Hong Kong Exchange & Clearing has paid £1.4bn for the London Metal Exchange, a company which makes £11.2m operating profit - a multiple of more than 124 times.

http://i.telegraph.co.uk/multimedia/archive/02101/London-Metal-Excha_2101036a.jpg
China accounts for 42pc of world metal consumption but only a smaller proportion of those volumes are traded through LME.

http://i.telegraph.co.uk/multimedia/archive/01806/DamianReece_60_1806683j.jpg (http://www.telegraph.co.uk/finance/comment/damianreece/)
By Damian Reece (http://www.telegraph.co.uk/finance/comment/damianreece/), Head of Business

7:37PM BST Sunday, 15 Jun 2012

Even Facebook only managed a multiple of 76 times when it floated and look what's happened to that.

Clearly HKEx is desperate to buy LME, which is very good at what it does, and has basically agreed to pay any price necessary. Why?

On a mundane level, of no concern to you or me, it can now ramp up the fees it charges investment banks and the like to become members of the exchange and trade the world's industrial metals. LME's members are also its shareholders so will see HKEx recoup some value that way.

But HKEx will be able to use its influence with Beijing to funnel far more of China's metals buying activity through its LME subsidiary, creating value that way too.

To do so it will open one or more of the LME's regulated warehouses in mainland China. These are the facilities needed for physical delivery.

China accounts for 42pc of world metal consumption but only a smaller proportion of those volumes are traded through LME.

If you were wondering why the LME hasn't just gone and opened a warehouse in China to win Beijing's business that way, it's because the Chinese government banned it from doing so three years ago. Now LME can get access to China, but only if it's owned by Hong Kong.

If LME had been bought by HKEx's rival bidder, the US Intercontinental Exchange, then China would have remained largely off limits. And they say this deal has nothing to do with politics.
Anyway, the deal is also significant because it marks a watershed for the UK strategically.

LME is a key piece of infrastructure, not just for the UK but the world.

While HKEx is free to buy LME, the LME does not have the freedom to buy HKEx. Why? Because HKEx's largest shareholder, with 5.8pc, won't allow it. Readers used to UK standards of share listings and corporate governance may be surprised by this. But don't be because HKEx's biggest shareholder is the Hong Kong government, which runs the island under China's "one country, two systems" philosophy.

Furthermore, the Hong Kong government has decreed any investor wanting to buy more than 5pc of HKEx has to get its permission. Its politicians also appoint HKEx's chairman and five of its directors, thus controlling the board too. Ownership of HKEx is well and truly sewn up, making it immune to a bid from those same free market companies, such as LME, that it's busy buying in London.

The Telegraph has always encouraged foreign investment in the UK and seen foreign ownership of UK companies as part and parcel of free trade and a characteristic of our own, wider freedoms. That's partly because we often run a trade surplus in mergers and acquisitions i.e. UK companies buy more foreign companies than foreign companies buy UK ones.

We've tended to ignore any lack of reciprocity but the LME deal is starting to make this casual ambivalence look like complacency. The LME's success took London 135 years to create. But its control has now gone to a place from where it can never be recovered because a different set of state-sponsored rules apply that would never be tolerated here. If we're willing to let LME go under such lop-sided conditions, what's next?
http://www.telegraph.co.uk/finance/comment/damianreece/9335026/Like-a-lamb-London-surrenders-London-Metal-Exchange.html
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Yours truly would wager that the [USA's] CME gold is NOT in LME, due to the Chinese abhorrence of all things hypothecated. Recall if you will, the OP article specifically addresses the re-hypothecation ad infinitum multiplier effect available to it via JPM London auspices. I suspect there are many vaults in the Crown of London, and it's conceivable that JPM has their own, yes?

After all, Crown London is where the big 12 have their "offices."


beefsteak

[JohnQPublic]

http://www.mrsciguy.com/sciimages/longitude1.jpg

That is why all the weird astronomical stuff is going on (pole changes, etc.). They are moving all that mass from the UK to Bejing.

[Horn]

Like a lamb London surrenders London Metal Exchange

beefsteak

Oly chit beetstek,

ooze got enuf dare fir its un tred.

Capital News!

[Horn]

After all, Crown London is where the big 12 have their "offices."

A bone to keep China playing?