Update to Addendum: Q and A

Rob Kirby

In my second to last piece, I wrote about physical “allocated” gold trades that were settled in London during the week of Oct. 5 under highly unusual circumstances two weeks ago. Here is the definition of allocated settlement:

Some short definitions: an unallocated account is an account where specific bars are not set aside, and the customer has a general entitlement to the metal. This is the most convenient, cheapest, and most commonly used method of holding metal. The allocated account, on the other hand, is an account opened when a customer requires metal to be physically segregated, and this needs a detailed list of weights and assays….

Since ALLOCATED SETTLEMENT requires the seller to provide the buyer with a “detailed list” of specific bars and weights – wouldn’t this create problems if said bars also appeared on the GLD bar list of Sept. 25? [There is a copy of the GLD Sept. 25 bar list linked at Kirbyanalytics.com in the left column].

Can a uniquely identifiable bar of gold really be in two places at once?

If such were the case, wouldn’t this create a DIRECT lineage from GLD inventory [HSBC the custodian] to intermediation by the Bank of England in aid of J.P. Morgan and Deutsche Bank?

If the items above are all accurate, wouldn’t it also imply that perhaps the most important document in the Gold World – right now – would be the bar list [with serial numbers and specific weights] that accompanied these allocated settlements during the week of Oct. 5?

Since such a document hasn’t surfaced already, might perpetrators feel like they’d “dodged a bullet”?

Of course, if all the above were true – and one wanted to ensure that a repeat of such an embarrassing situation did not happen again – might they want to make “hasty” provisions to replenish their physical bullion stocks?

CME to allow gold as collateral for all exchange products

By Matthew Walls
LONDON (MarketWatch) -- U.S.-based clearing house CME Group Inc. will allow physical gold to be used as collateral for margin requirements on all exchange products, a spokesman said Monday.
The new global policy is effective Oct. 19 in accordance with a member's notice issued late Friday, said spokesman Jeremy Hughes in London.

Clearing member firms will be allowed to post up to a maximum of $200 million worth of gold as collateral to cover performance bond, or margin, requirements, Hughes said.
The policy was a byproduct of CME's recent launch of clearing services for over-the-counter London gold spot and forward contracts, he said.
"Many of the [trading] houses hold quite a lot of physical gold and would welcome using it more efficiently," he said.
The gold will be held at J.P. Morgan Chase & Co.'s bank in London.

If / when such a bar list surfaces, wouldn’t it amount to a “wooden stake” through the hearts of a bunch of “fiat-vampires”?

Wouldn’t it make sense that parties “who really knew the scoop” might be busy RIGHT NOW trying to accumulate still more physical? Wouldn’t you do the same?

If all of this is correct, wouldn’t the gold market be accurately described as the equivalent of Mt. St. Helens -perhaps days / weeks at the most - before it blew its top?

All very good questions, no?