Lear Capital: Gold is as Good as Cash

By @ibtimes on

DaveThis morning a friend called me and asked, why's gold up today?  It's almost gone unnoticed that since the gold price tried to break below a support level at $1310/oz., it has climbed more than 3% in less than two weeks time. 

It should come as no surprise that gold is up on any day.  Gold needs no better excuse to rise than the world is $100 bajillion dollars in debt.  Debt that can never be repaid - at least not without printing more money.  Default or print, those will be the options.

Nevertheless, gold's rise today may have been prompted by comments that appeared in a Wall Street Journal article this morning.  Today, marks the day the GEL was created.  Gold Equity Loans!! 

This morning the WSJ broke a story that J.P. Morgan is now accepting physical gold as collateral against cash loans. 

Taken from the article:

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, said John Rivett, collateral-management executive at J.P. Morgan Worldwide Securities Services.

Of course, J.P. Morgan hopes gold owners will borrow against gold to buy other commission producing products.  Currently, the rub on gold has been that it just sits in storage somewhere producing no income.  By allowing gold owners to borrow against gold equity, this presents opportunity for the customer to convert physical gold to an income earner.  

I think it sounds a bit odd that someone would borrow against a hard asset to buy something they decided not to buy in the first place.  To me, borrowing against your gold to buy a paper asset defeats the purpose of diversifying. 

Nonetheless, many gold owners who may be enticed out of gold in favor of income producers, may now refrain from selling and just borrow against their holdings.  The efffect this may have on gold demand will be interesting to watch.  Especially if gold owners are allowed to borrow to buy more gold.  That could be fun.

For now, what we can take from all of this is that in the eyes of more and more people, Gold is as good as cash. 

  

  

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