Tuesday, August 16, 2011

JP Morgan's Fractional Gold Scheme Is Working

The real reason JP Morgan recently decided to open and operate a Comex gold vault is now in full view. A close friend of mine in the NYC hedge fund community informed me today that hedge funds are now buying gold from JP Morgan, who turns around and "safekeeps" it for them for 15 basis points (that's .15%) on the market value of the gold being stored. My friend referred to this as "allocated" gold. On the surface it looks like the smart money "gold rush" is on.

But, in the wisdom of Shakespeare via Macbeth: "nothing is but what is not." The "what is not" part of the above business transaction is the full, 100% allocation of the gold being purchased. In other words, just as those of us who understand how the game is being played - and have pointed this out explicitly with proof from the GLD prospectus and other examples - JP Morgan is employing the traditional Wall Street/banking business model of fractional gold ownership. This is not new, as Morgan Stanley was successfully prosecuted for this same scheme several years ago when the firm was exposed for selling physical silver to high net worth clients - and "safekeeping" it for a fee. The scheme was exposed when a few of them demanded delivery and Morgan Stanley was unable to deliver the actual silver on a timely basis. Please use google to find the case if you are curious about the details. Only those of us intimately involved in the precious metals market at the time even bothered to care about this case.
JPM

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