Guest Post by Paul Craig Roberts and Dave Kranzler
We have explained on a number of occasions how the Federal Reserves’ agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts (“naked shorts”) on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in “paper gold” is created, and this increase in supply drives down the price.
This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts (“open interest’) can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.
In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.
For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.
Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world’s reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington’s ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.
It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.
OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.
The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.
During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.
If these were long positions hedging the banks’ Comex shorts, why did the price of gold and silver decline?
More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.
The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.
If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.
Best explanation I have read. Exactly
while i do not for one second doubt there is manipulation, there is another force in play. Uncertainty over the future of the euro is causing big money to flood into the USD, which strengthens is against other currencies, including gold and silver. The dollar will be the last fiat currency to go, IMO. This means that it will first strengthen, a lot, as other fiat currencies fail. This will cause the price of gold, in dollars, to fall, which will be a big buying opportunity. All of this deflationary pressure will be a big problem for debtors, the biggest of which is the US govt, which is why they will have to fire up the printers, big time.
PCR is spot on- For several years I would get up early and take a look at the overnights and everyday, sure enough the short contracts would be dumped around 3:00am and there would be a downward spike in the metals. This price suppression has gone on for years now and I don’t see any end to it as long as they can pay up in cash on delivery of the contracts. Don’t see this changing anytime soon but I would still rather be holding PM’s when the shit hits the fan than USD’s.
Duh? Isn’t it obvious?
At least in my judgement, the precious metal markets are being consistently rigged.
I believe the reason that they are being rigged is that the financiers have convinced the political class that this is a necessary action in order to prevent a panic, a run on the dollar and the bonds, and a seepage of critical funds into an unproductive investment as compared to equities for example.
We are just defending what is ours, right? And what is ours is the global dollar hegemony.
This is really just another excuse for looting, picking both the global public pockets and the Treasury’s.
This sort of thing seems to happen periodically, at least once per generation,and the system generally has to get washed out badly, and then reform may come. You can see a pretty clear trend back to the early Reagan years for this one.
Protracted market rigging tend to distort supply profoundly. And there should be no doubt that the distortions and excesses of our current round of economic quackery have caused an historical imbalance of wealth and power, and the rigging of the gold and silver markets have badly affected the ability of supply to meet demand.
Oh well. Interesting times.
Jesse