The European Gold Confiscation Scheme Unfolds: Euro Parliament Approves Use Of Gold As Collateral

Zero Hedge ^ | 05/25/2011 | Tyler Durden

[SeekAndFind]

Wonder why Europe is pressing so hard for Greece (and soon the other PIIGS) to collateralize its pre-petition loans on a Debtor in Possession basis? Here is your answer: "Yesterday’s unanimous agreement by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) to allow central counterparties to accept gold as collateral, under the European Market Infrastructure Regulation (EMIR), is further recognition of gold’s growing relevance as a high quality liquid asset. This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities." Luckily for Greece, it has 111.5 tons of gold in storage (somewhere at the New York Fed most likely). Looking down the road, Portugal has 382.5 tons, Spain 281.6, and Italy leads the pack with 2,451.8 tons.

Complete press release:

The Economic and Monetary Affairs Committee of the European Parliament has approved gold to be used as collateral confirming its status as a high-quality liquid asset

Yesterday’s unanimous agreement by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) to allow central counterparties to accept gold as collateral, under the European Market Infrastructure Regulation (EMIR), is further recognition of gold’s growing relevance as a high quality liquid asset.

This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities.

Natalie Dempster, Director of Government Affairs at the World Gold Council said:

“It is very significant that the European Parliament is putting its weight behind the argument that the unique characteristics of gold make it an ideal form of high quality liquid collateral.

“We now look forward to the European Parliament and Council of the European Union upholding the inclusion of gold in the next stage of negotiations around EMIR which will now take place after the July plenary vote. The ratification would mark a significant step forward in redefining what constitutes a highly liquid asset under the Capital Requirements IV Directive, due in the coming month, from the European Commission.”

Market demand for gold to be used as a high quality liquid asset and as collateral has been building for some time. In late 2010, ICE Clear Europe, a leading European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral. In February 2011, JP Morgan became the first bank to accept gold bullion as collateral via its tri-party collateral management arm. Exchanges across the world, such as Chicago Mercantile Exchange, are now accepting gold as collateral for certain trades and London-based clearing house LCH Clearnet has said that it also plans to start accepting gold as collateral later this year, subject to regulatory approval.

The World Gold Council has examined this trend and has defined the characteristics that make gold an excellent form of collateral in its study “Gold as a source of collateral”. The report includes a case study on ICE Clear Europe, explaining why the central counterparty clearing house has started to accept gold as collateral and how this operates in practice.

“As regulators, from G20 countries, demand that more OTC trading is cleared on exchanges and with the ongoing world economic difficulties further eroding the credit worthiness of other forms of collateral, we expect to see increasing demand by clearing houses, exchanges and investment banks to use gold as collateral,” says Natalie Dempster.

[Pecos]

The feds took control of all gold of anything that wasn’t jewelry in the 30’s. Today, the banking and 401K records make that even easier. It would be a very easy class warfare game.

[cradle of freedom]

I have been thinking about buying more gold jewelry as a safety net. Maybe buying jewelry when it is on sale. I don’t know about the resale value of jewelry. Does anybody think this is a good idea? I don’t mean going crazy with jewelry but just buying a piece here and there when it is on sale. Jewelry is a luxury but it also has a practical side since it does not lose its value like so many other things that we spend our money on.

[Godebert]

Skip the jewelry and go with recognizable gold and silver coins.

[Pecos]

Jewelry, as a hedge, has several problems. First - you are buying at retail, and there is a huge mark-up on jewelry because it is usually an emotional purchase and retailers can get a way with it. Second - are you an expert on the different grades of gold and gems? Third - Have you been tracking anything except the price of gold? Gems, especially diamonds, have their own particular cycle. In the past, diamonds were an incredibly controlled market, with De Beers dictating the prices. I don't know the details of the current market.

In summary, don't invest in anything you have not become very knowledgeable about. Someday, I could tell you about the absolutely stupid thing I did with $14,000, but that is a tale for another day.

[cradle of freedom]

Thanks for sharing your experience. I am thinking of buying silver coins what do you think of that?

[Pecos]

I have not been following any of the precious metals for investment purposes. But if I were to consider doing so, the first thing I would do is chart the price over the past 10 years (data should be easy to find), and then plot the prices of other metals, other commodities, and the various Dow-Jones indexes, looking for leading indicators. That is, can any one thing or a group of things be used as a predictor of the price of silver?

If you decide to go that route, stay away from coins whose price is driven by their numismatic value (i.e., rarity and condition). Those are more in the eye of the beholder than other factors.

I obviously do not know your personal situation, but my tendencies in investing these days go in the direction of (a) learning practical skills that others will pay for [think blue collar trades, Semper Gumby!] to augment my good college education, (b) food storage, (c) high quality non-trendy clothing. This is not to say that all of my buying power goes to this sort of “head down, the disaster is heading our way” mentality, but you were asking about investing. We all have to enjoy the journey as well. Maybe your journey will include learning a musical instrument, regardless of age. Maybe it will include building an airplane, even if you don't currently have a license to fly it.

“Man is that he might have joy”, a thought that I often forget when cleaning out the cesspools that can develop at work or at home.