J.P. Morgan Will Accept Gold as Type of Collateral
by Carolyn Cui and Rhiannon Hoyle
Tuesday, February 8, 2011
The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.
This report tells why, and what to look for in the data and the markets. GO TO THE POST
Gold hasn’t reinvented itself as a currency yet. But it is getting closer.
J.P. Morgan Chase & Co. (NYSE: JPM – News) said it will allow clients to use the metal as collateral in some transactions. For example, a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere, betting on making a better return. Typically, banks accept only Treasury bonds and stocks in such agreements.
By making the announcement, J.P. Morgan is effectively saying gold is as rock solid an investment as triple-A rated Treasurys, adding to a movement that places gold at the top tier of asset classes. It also is trying to capitalize on all the gold now owned by hedge funds and private investors that is sitting idle in warehouses.
[More from WSJ.com: Goldman’s Preferred Buffett Play]
“It’s solidifying a trend that gold is re-establishing its role as a monetary and financial asset,” said Carlos Sanchez, associate director of research with New York commodities consultancy CPM Group.
J.P. Morgan said it is responding to demand from clients, many of which also store gold in the bank’s vaults.