JPMorgan Chase to Accept Gold as Collateral

Measure taken because of clients’ hedge with bullion against inflation

JPMorgan Chase announced Monday that it would begin accepting physical gold as collateral from counterparties, since an increasing number of its clients are using the precious metal as a hedge against inflation.

Reuters reported that the bank, which also acts as custodian for some large precious metal ETFs and holds physical stocks in a repository, said that it would allow gold to be used as collateral in securities lending and repurchase obligations.

John Rivett, collateral management executive for J.P. Morgan Worldwide Securities Services, said in the report, "Many clients are holding gold on their balance sheets as an inflation hedge and are looking to make these assets work for them as collateral." He added, "By combining our collateral management and vaulting capabilities, we provide clients with greater flexibility in how they mobilize collateral."

Although gold this year has fallen by approximately 4%, in 2010 it rose by about 30%, igniting a craze for investing in gold that has not yet abated. The demand has led to investors using the metal as a hedge against inflationary pressure in developed and emerging economies, and has also rekindled interest in storage facilities for the physical object.

J.P. Morgan owns vaults in locations worldwide to hold precious metals. AdvisorOne reported in January that a new ETF backed by gold bars opted to have its bullion stored in a J.P. Morgan facility in Singapore, and in October that gold vaults were reopening all over the world as wealthy investors hit by gold fever and the skyrocketing price of the precious metal opted to buy it by the ton. At that time JPMorgan Chase reopened its New York gold vault and had recently built a new facility in Singapore—where the abovementioned gold ETF would later decide to store its assets.

In the report, J.P. Morgan said of its decision that the move would permit its clients to mobilize collateral across borders and trading activities, "regardless of the underlying obligation, to extract maximum value and manage risk."

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