The coronavirus pandemic has some markets preparing for the worst. CME Group, which owns Comex, the largest futures market in the world, recently amended its 364-day credit facility increasing the limit from $5 billion to $7 billion. According to CME’s regulatory filing, the credit line also has the option to increase to $10 billion, and would be used to offset liquidity deprivation in the event that COMEX clearing members were to default.
Specifically, the filing states that the credit facility is “intended to provide temporary liquidity to CME in the event of a clearing member default, a liquidity constraint or depositary default, or in the event of a delay in the payment systems utilized by CME.”
Since CME Group provides clearing services for clients trading on derivative markets such as COMEX, the amended credit facility increase could be a sign of what’s to come. It could very well be that CME Group is anticipating a COMEX member to default, meaning that they would not be able to deliver the physical version of paper gold. In the event that there is a discrepancy between paper gold and the actual amount of physical gold available for delivery, then the gold market better fasten its seatbelt.
Information for this briefing was found via Bloomberg, Market Watch, and Zero Hedge. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.