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Dave Kranzler: New Comex gold collateral mechanism seems meant to rescue HSBC
12:38p ET Saturday, November 16, 2019
Dear Friend of GATA and Gold:
Our friend Dave Kranzler of Investment Research Dynamics in Denver today elaborates on his commentary yesterday --
http://www.gata.org/node/19589
-- about the New York Commodities Exchange's invention of another mechanism for creating "paper gold." Kranzler writes today that the mechanism seems aimed at easing the pressure of the short position likely making serious trouble for HSBC, the bullion bank custodian of the major exchange-traded fund GLD.
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Kranzler's hypothesis fits the decades-long practice of the international gold price suppression scheme of governments, central banks, and bullion banks. That is, to keep metal moving around so fast that it can be applied to pressure points before its real owners notice that it's missing -- to make a single ounce of gold seem to be in as many as a hundred places at once.
Kranzler's elaboration is appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
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New Comex Gold Collateral Mechanism Seems Meant to Rescue HSBC
By Dave Kranzler
Saturday, November 16, 2019
On November 4 authorization for traders on the New York Commodities Exchange to use "London gold" and Comex gold warrants as collateral was tripled, raised from $250 million to $750 million. HSBC now has used $340 million, or 45.3 percent, of its new collateral limit. It seems more than coincidental that HSBC took advantage of the collateral increase so soon after it was put into effect.
I see the rule change as a low-grade bailout of HSBC, analogous to the Fed's low grade bailout of the big banks with the "repo" "quantitative easing." The rule change also flags HSBC as the largest trader in the commitment-of-trader category that designates the percentage of the long and short contracts held by the four largest traders on the Comex.
Assuming, as is likely, that HSBC's short position was largely put on at lower gold prices, the bank is probably getting hammered with a mark-to-market loss.
Here is the issue that needs to be answered but likely never will be: Do any of the warrants HSBC has pledged as collateral involve gold not owned by HSBC?
In my opinion, probably all the gold in these warrants is not really owned by the bank.
Most likely HSBC is using for collateral purpose gold that does not belong to the bank -- customer gold. That is outright hypothecation.
I wonder if the agreement signed by the vault operators allows them to hypothecate gold held in the vault and not owned by the bank.
Now here's where it gets even more interesting. Assume HSBC is short those warrants pledged as performance bond collateral and the price of gold moves a lot higher. Then HSBC is getting killed technically being short gold collateral it has pledged for its own liability but doesn't own. How does the bank remedy this?
It uses an exchange-for-phyiscal or privately negotiated transaction using "London gold." Since HSBC is the vault operator for the major gold exchange-traded fund GLD, this London gold EFP/PNT would likely use GLD vault gold that may or may not have been hypothecated.
HSBC is likely getting financially squeezed to a major extent on its Comex futures short position and the CME bailed it out by changing the collateral and performance bond margin rules.
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Dave Kranzler operators Investment Research Dynamics in Denver.
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