JPM Begins to Believe (in Gold) ...about time, eh?

Trinity (seeing Neo turn to face an Agent): What's he doing?
Morpheus: He's beginning to believe.





Today's Wall St. Journal reports, JPMorgan will accept Gold as a type of collateral:

Gold hasn't reinvented itself as a currency yet. But it is getting closer.

J.P. Morgan Chase & Co. (NYSE: JPM - News) said it will allow clients to use the metal as collateral in some transactions. For example, a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere, betting on making a better return. Typically, banks accept only Treasury bonds and stocks in such agreements.

By making the announcement, J.P. Morgan is effectively saying gold is as rock solid an investment as triple-A rated Treasurys, adding to a movement that places gold at the top tier of asset classes.
 
Alexander Bain famously (at least in my view) argued: Belief is often accompanied by strong emotion, yet emotion, as such, does not amount to believing. Fictitious narratives may stir the mind more strongly than real; we may disbelieve and yet tremble...... We are thus driven to the alternative query— Is, or is not, Belief essentially related to Action, that is, volition? I answer, it is. Preparedness to act upon what we affirm is admitted on all hands to be the sole, the genuine, the unmistakable criterion of belief. Columbus shewed his belief in the roundness of the earth, and in the existence of an unbroken ocean between Europe and the east coast of Asia, when he undertook his voyages. The Emotions and The Will

In other words- under this head- by adopting this policy, and acting upon it, JPM is demonstrating its belief in Gold as an asset class.

For their next trick I hear they plan on re-inventing the wheel.

Staying in Henny Youngman banker mode (Take my money--Please!) JPM just figured out that Gold might be as valuable as triple-A rated Treasuries (Take my money and give me your Gold-- Please!!).

The WSJ authors add (and the hits just keep on coming): In the past, worries about a lack of liquidity in the gold market have prevented banks from taking gold as collateral. But as investors piled into the market in recent years, the market has deepened.

But seriously folks, there's no liquidity in the Gold market, just Gold, on one side, and liquidity, on the other.  Prices in that market, which have risen by roughly 500% since 2001, explaining, perhaps JPM's policy shift, reflect participants belief in the relative values thereof (Gold vs. liquidity). 

Sadly, JPM might discover, as Neo did in the Matrix, that the "real world" of specie collateral is, for bankers, drab and gray compared to the exciting times of the Financial Matrix year 1999.

As Morpheus might put it, you've been living in a dream world JPMorgan. Welcome to the credit desert of the real (money, that is).

To wax explicit (and make this essay actionable), if JPM has finally gotten around to seeing the virtues of Gold collateral based trading, it will be in their interest to see it holds its value.  If you haven't gotten on the Gold train yet, you might want to consider it.

Remember, it ain't a bubble until the big banks get involved.


Full Disclosure: Long Gold, no position in JPM