Thursday, June 26, 2014

Alert: Chinese Port Rehypothecation Scandal Developments (Bloomberg/Zero Hedge)

It was recently reported on Bloomberg courtesy of Zero Hedge that "up to 80 billion dollars in loans backed by gold have been falsified." As their articles will correctly explain, the following has been occuring:
  • Owners of raw commodities stored at ports were obtaining letters of credit from various financial institutions which was then used in various financial investment schemes and the Chinese real estate market. 
  • It has long been suspected that gold was being used as collateral to invest in those vehicles. The unwinding of these investments in the Chinese shadow market may raise gold prices because future 'paper' gold hedges are bought back.
  • Gold was purchased in the 'paper' futures market at low prices and it has likely been these Chinese GOLD CFD's that have been depressing spot gold.
  • Other commodities such as copper may have been collateralized several times. Non precious commodities will likely be hit negatively by this.