JPM Does This With Cash But Not Gold/Silver? Give Me A Break...

JP Morgan was nailed in the UK for commingling client cash with bank cash in its futures and options business. Here's the link from Clusterstock.com: $48 Million Fine for Commingling. Please note that, as the report points out, the biggest problem with a big bank commingling assets in a general bank account is that client assets are in jeopardy in the event of insolvency.

This is exactly what is going on with the fractional bullion depository system at the big bullion bank depositories. With depositories, you have "allocated" and "unallocated" bullion accounts. If you read through the GLD prospectus (HSBC is the custodian), you'll see that it is specifically stated that one of the risks to the shareholders of the Trust is the possibility that HSBC commingles the gold (in fact, there are times when the bullion becomes commingled when it is being moved around). In the event of insolvency, the "allocated" account, which would be analogous to a "client" account, is at risk for becoming a general unsecured creditor of HSBC if allocated and unallocated bullion become commingled. The reason being is that the creditors will challenge custody if bullion that should be sitting in an allocated bin is sitting in the unallocated bin. The prospectus specifically warns of this risk.

For the record, JP Morgan is the Custodian for SLV. As such, the whole world, or at least that which is paying attention to the potential fraud embedded in these paper bullion ETFs, has been looking with extreme prejudice at JPM's custodianship of SLV and JPM's extreme paper short in silver on the Comex.

The bottom line here is that where there's smoke, there's usually fire. JPM was nailed for a record fine in the UK for commingling cash accounts. Anyone who thinks it doesn't happen in bullion accounts at these big banks is either naive, and idiot or both. You better think again if you think your investment in GLD, SLV, IAU or any of these bullion investment products sold by the likes of Kitco, Monex et al is really an investment in bona fide physically allocated bullion.