In 1913, legendary financier JP Morgan was famously quoted as saying that “Gold is money and nothing else.”
Perhaps J.P. Morgan Chase’s CEO, Jamie Dimon, has finally begun to understand this concept.
The company announced today that it will begin to accept physical gold bullion as collateral with its counterparties to meet the demands of clients look to use the yellow metal as a hedge against inflation.
The U.S.-based investment and commercial bank, which owns vaulting facilities for storing precious metals across the globe, stated the initiative would allow its clients to mobilize collateral across borders and trading activities, “regardless of the underlying obligation, to extract maximum value and manage risk.”
John Rivett, collateral management executive for J.P. Morgan Worldwide Securities Services, stated that “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…By combining our collateral management and vaulting capabilities, we provide clients with greater flexibility in how they mobilise collateral.”
With this announcement, J.P. Morgan will be the only tri-party collateral manager in the world to accept physical gold as collateral to satisfy securities lending and repo obligations with counterparties.
While J.P. Morgan has been accused by many investors and gold organizations of manipulating the price of gold, today’s news is an indication of the yellow metal’s increasing relevancy in the global monetary and financial system. This trend has developed as central banks around the world continue to recklessly print money to try to solve a problem that was largely created by central banks printing money in the first place.
The foolish idea of trying to solve a problem by doing more of what created the problem in the first place is a concept so simple that anyone around the world should be able to easily understand. Unfortunately, policymakers – particularly in the U.S., Europe, and Japan – are oblivious to this concept and have caused individuals around the world to attempt to protect their wealth by investing in gold; and J.P. Morgan’s gold collateral decision is a testament to this trend.