At the outset, it is worth noting that regulatory bodies tend to give large banks the benefit of the doubt, only looking closely at their compliance activities when they can no longer be ignored. Consequently, large banks have been known to act as if regulations don’t exist.This lack of respect for the law and securities regulations was demonstrated in an important case in the gold market when JPMorgan Chase’s global head of precious metals trading and board member of the London Bullion Market Association was found guilty of attempted price manipulation, commodities fraud, wire fraud and spoofing prices in gold, silver, platinum, and palladium futures. And it is not as if this was an isolated case: it had been going on for eight years involving thousands of unlawful trading sequences. Another colleague heading up the New York gold desk was also found guilty, presumably acting in concert with its London dealers. That was in July 2019. Finally, in 2020 the bank itself pleaded guilty to unlawful trading in precious metals futures markets and was heavily fined.Inexplicably, with this track record JPMorgan Chase Bank was recently appointed joint custodian of SPDR Gold Shares () alongside HSBC. This ETF is the largest in existence by far and its sponsor is a subsidiary of the World Gold Council. Why the WGC sanctioned the appointment of a bank whose senior dealers in precious metals have been found guilty of manipulating gold prices and jailed is a mystery. It is not as if having one custodian represents more risk than two. Furthermore, HSBC stores all GLD bullion in its London vaults, so it is subject to English property law and securities regulation in every respect.JPMorgan Chase was reported to be considering the accumulation or even transfer of GLD’s bullion to its vaults in New York. It is thought that their vault is linked underground to the Fed’s vault, with the Fed on the north side of Liberty Street and Chase Bank across the road. It is in this context that we should read David Webb’s analysis of central counterparties in his The Great Taking, where he details the legal changes that permit “borrowing” of investor’s securities to prevent a systemic crisis for lack of collateral.Ownership of securities as property is now replaced through dematerialization with a “security entitlement”. The free use of that security entitlement as collateral without the knowledge or agreement of the entitled is now permitted. According to the ruling of the New York Bankruptcy Court in Creditors of Lehman Bros v JPMorgan Chase which permitted JPMorgan to seize Lehman’s deposit balances, it effectively extended this facility to JPMorgan Chase as if it was a central clearing counterparty.Therefore, we can assemble a picture that will allow JPMorgan Chase to use GLD’s bullion as collateral, perhaps to lease or swap it, or alternatively to dispose of it in return for a book entry credit.Our suspicions will be increased when we think through the implications of the proximity of JPMorgan Chase’s vault to the Fed’s vault across the road and circumstantial evidence of a tunnel between the two. Stored in the Fed’s vault is gold for the New York Fed, earmarked for foreign central banks. And when we remember the difficulty Germany had getting the New York Fed to return a paltry 300 tonnes, doubtless our suspicions will go into overdrive.Undoubtedly, GLD’s trustee The Bank of New York Mellon, and the World Gold Council should have some serious questions to answer as to why JPMorgan Chase was appointed a custodian. Almost certainly, they won’t be called upon to answer them. However, the legal position of GLD shareholders’ underlying property assets appears compromised by these developments.Furthermore, authorized participants can borrow their shares from a centralized securities depository and redeem them for physical gold. By hedging their position in futures or London’s forward markets, they are under no pressure to return the gold and close their stock loan. Given this facility, far from GLD being a secure investment in gold bullion, it may already be being used as a source of liquidity for bullion dealers.Conclusion: If you are considering investing in gold, buy bullion instead of an ETF! See Ronan Manly’s article at See Ibid.More By This Author:The Inevitable Collapse Of The US Dollar – Gold Is Money Market Report – Friday, Jan. 12 Fall Of The Fiat Empire: Why We Can’t Escape The Debt Trap
The Perils Of Owning Gold Through ETFs
