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Whistleblower Exposes JP Morgan's Silver Manipulation Scheme...And the Same Exact Thing Happens in the Gold Markets Too
Yesterday, during CFTC position limit hearings for gold and silver futures contracts, GATA Chairman Bill Murphy read a letter from London metals trader Andrew Maguire regarding how JP Morgan metal traders "bragged" about making money in the silver futures markets by manipulating them. Zero Hedge has already posted the full transcript of Mr. Maguire's correspondence, so to avoid redundancy, I will not replicate that correspondence here. More than two years ago, in October, 2008 I sent CFTC Commissioner Bart Chilton very compelling circumstantial evidence that massive manipulation was occuring in gold futures markets based upon my understanding of how massive shorts were initiated in the gold futures markets and bids sometimes pulled, creating a collapse in momentum, at precise times in the NY markets, to create waterfall declines in the gold futures market. Below is the correspondence I had with Mr. Chilton more than two years ago and my original blog post in its original format that I posted on the Underground Investor on October 16, 2008:
Today there have been four distinctly and differently priced markets
established for gold: (1) Futures markets in Asia that consistently
establish prices $20 an ounce to $60 an ounce higher than the prices
established in (2) Futures markets in New York; (3) Physical bullion
bars that dealers are starting to price at healthy premiums above both
daily spot prices established in Asia and London/New York; and (4)
Physical coins that dealers have always priced at premiums above bars
and spot prices, but that are now selling at soaring premiums above spot
prices.
Since the July 14th correction in gold and silver markets began,
waterfall declines have occurred in gold prices in New York futures
markets that trade paper gold where physical delivery of real gold
occurs with less than 1% of all paper traded futures contracts. The
differences in spot prices in Asian futures markets and in New York
futures markets for gold have been staggering for the past 10-12 weeks, so much so that two distinct and separate future
markets for gold have been established, one in which the
gold price is significantly higher in Asia and another, where the gold
price is significantly lower in New York. As they say, a
picture can paint a thousand words so below you can find the daily spot
charts in Asia and in London/New York so you can compare the huge
discrepancies between these markets on a visual basis.
To explain the below charts, the graph
(represented by the green fluorescent line) in the top row illustrates
the gold price behavior in the Asia (Shanghai/HK) futures markets. The
graph directly below (again represented by the green fluorescent line)
illustrates the gold price behavior in the London/New York (L/NY)
futures markets that very same day. I have posted the
date of each daily 24-hour chart in the graphs below, and all dates
represented in the graphs fall between the start of this gold/silver
correction on July 14th, 2008 and October 1, 2008. At the bottom
of all charts, I have also included the positive and negative price
movements for gold for the days I’ve noted in the attached graphs.
Some of the absolutely gargantuan anomalies I speak
of above are as follows: On July 22, the gold futures market in Asia
closed up a +$5 an ounce and by the time New York markets had closed,
gold had lost $24 an ounce. On August 11, gold closed higher by $8 an
ounce in Asia and then sold off in New York markets for a $40 an ounce
loss. On August 14, gold closed higher by $2 an ounce in Asia, and again
dropped like a stone in New York markets by $42 an ounce. Again on
September 4, gold closed higher by $6 an ounce, then lost $24 an ounce
by the time New York markets had closed. On September 9, gold was steady
in Asia, only losing $2 an ounce, then again got hit in New York
markets and lost an incredible $37 an ounce. While the
losses I have delineated in Western markets are from the time the Asia
futures markets close until New York markets close and thus include
action in the London futures markets, the graphs illustrate that the
waterfall selloffs happen in New York the bulk of the time, and almost
always around 10 AM New York time.
While not every day for the last 10 weeks are
represented by the patterns in the above graphs, the
massive anomalies in prices between Asia and New York are not adequately
explained by the regulatory differences between these two futures
markets. According to Zhang Bingnan, the Beijing Gold Economy Center
President, the “gold prices in China should be 1 yuan a gram, or more
than $4 an ounce” higher than the prices established in New York or
London. Obviously these regulatory differences can’t explain why gold
prices in Asian futures markets are consistently higher than the NY
futures prices by $20, $40, $60 and even $100 an ounce within a 24-hour
trading period. Furthermore, even on a day in which the
Asia higher/New York lower pattern was reversed, as on August 26th, the
massive spike in gold price that produced (this time higher) the great
diffrence in price between Asia and New York for that 24-hour trading
period occurred again in the range of 10 AM New York time.
These graphs seem to point to visual evidence
of manipulation by traders in New York that are using the futures
markets not to hedge production, but to manipulate prices to make
enormous profits in a very short period of time. I realize that the
volume of contracts moved in New York futures markets for gold and
silver is far more substantial then the volume of contracts moved in
Hong Kong, but still, this still does not explain many anomalies for me,
including the following:
(1) Why has gold consistently been valued
higher in Asian markets and significantly higher on multiple days (to
the tune of $20, $30, and even $40+ an ounce higher) in Asia all
throughout this correction that started on July 15th? So far, I have not
been able to find any other commodity, other than silver, that behaves
like this. I have not found huge discrepancies in any other commodity
where a commodity is consistently valued 2% to 4% higher in
Asia than in other regions of the world.
(2) Should not gold have the same approximate
value in Asia than it has in New York? Why would gold consistently be
$10 – $100 more valuable in Asia than in New York? As
American firms (from what I understand) are allowed to trade in Asian
markets, do not these huge arbitrage opportunities allow firms to earn
illicit profits in the ranges of tens to hundreds of millions of dollars
daily? And because gold prices consistently swing $30 to $60 an ounce
in price from the high in Asia to the low in New York, are there
American banks or investment firms that are using these price anomalies
to enter and exit short futures contracts the same day?
(3) In the top of the graphs that illustrate
the Asian futures markets, the price of gold, on the days it is higher,
does not spike at the exact same period of time every day. The spikes
higher seem to be random as one would expect in a free market. However,
in the bottom row that depicts the same exact trading days in NY futures
markets, a waterfall decline happens at almost the exact same time
daily in many many of these charts, at about 10 AM New York time. At
this time, gold often sheds $10, $20 and even $30 an ounce within an
hour. How can free markets dictate that a sell-off of a commodity
happens at the exact same time almost daily? What are the mathematical
odds that such behavior would occur in a free market?
(4) As a control, I graphed all Sunday markets
in gold since the start of this correction on July 15th, 2008. There are
11 such days. Sunday is a great day to see how the gold futures markets
work because only Asian markets are open and my guess is that the
elements in New York opt to stay out of the Asian markets on Sunday.
Though all 11 weekends I have graphed fall within one of
the steepest correction periods of this 7-year gold bull (July 15th to
Oct.1, 2008), 8 weekends, or 73% of the time, Asia gold markets were
higher.
Though I am assuming that trading volume in Asia
markets is light on Sundays compared to the rest of the week, it seems
odd that 73% of the days that are apparently free of NY players were
positive. Furthermore, Asia futures markets experienced some of its
greatest increases in gold price (+$13, +$12 and +$20 an ounce) on days
absent the NY players that seem to manipulate markets. Finally, the 3
down days were absent the type of waterfall declines we have seen in NY
we have seen during the past 10 weeks with the declines amounting to
-$9, -$4, and -$1 an ounce.
The above seems like compelling evidence to me
that something is seriously amiss in the futures markets for gold
(notably paper markets are easily manipulated because physical delivery
of gold to settle these contracts historically happen less than 1% of
the time) and that rampant manipulation for profits by just a few
players is occurring in an unchecked fashion. According to data recently
released by the Office of the Comptroller of the Currency, a division
of the US Treasury, of the $135 billion of gold derivatives contracts
(including futures and options) controlled by financial institutions,
JP Morgan controls $96 billion (71.11%) of these contracts and HSBC Bank
USA controls $34.4 billion (25.48%) of these contracts. In other words,
just two players control almost all gold derivatives contracts in the
entire United States.
The data to accompany the price behavior of
gold on Sundays in Asia’s futures markets (represented by the chart titled Gold Futures Markets IV accesible in the link above) is below:
(all dates in 2008)
July 20 +$8 an ounce
July 27 +$3 an ounce
August 3 +$5 an ounce
August 10 +$8 an
ounce
August 17 +$13 an ounce
August 24 -$9 an ounce
August 31 +$1 an ounce
September 7 +$12 an ounce
September 14 +$20 an ounce
September 21 -$4 an ounce
September 28 -$1 an ounce
The data to accompany the 3 graphs that compare
Asia and New York futures markets is below:
July 17
Asia closed up +$2 an ounce.
NY closed down -$10 an ounce.
July 18
Asia closed up +$6 an ounce.
NY closed down -$6 an ounce.
Jul 21
Asia closed up +$11 an ounce.
NY closed up +$1 an ounce.
July 22
Asia closed up $5 an ounce.
NY closed down -$24 an ounce.
Aug 4
Asia closed down -$1 an ounce.
NY closed down -$16 an ounce.
Aug 7
Asia closed up + $3 an ounce.
NY closed down -$15 an ounce.
Aug 11
Asia closed up +$8 an ounce.
NY closed down -$40 an ounce.
Aug 14
Asia closed up +$2 an ounce.
NY closed down -$42 an ounce.
Aug 26
Asia closed down $-9 an ounce.
NY closed up +$17 an ounce.
Aug 27
Asia closed up +$9 an ounce.
NY closed down -$4 an ounce.
Aug 29
Asia closed up +$9 an ounce.
NY closed down -$4 an ounce.
Sept 1
Asia closed up + $6 an ounce.
NY closed down -$7 an ounce.
Sept 4
Asia closed up +$6 an ounce.
NY closed down -$24 an ounce.
Sept 5
Asia closed up +$5 an ounce.
NY closed up +8 an ounce.
Sept 9
Asia closed down -$2 an ounce
NY closed down -$37 an ounce.
Sept 10
Asia closed up $10 an ounce.
NY closed down -$20 an ounce.
Sept 25
Asia closed up $8 an ounce.
NY closed down -$10 an ounce.
Sept 30
Asia closed down -$6 an ounce.
NY closed down -$23 an ounce.
Several weeks ago, on October 1, 2008, I sent
the bulk of this information to Mr. Bart Chilton, Commissioner of the
Commodities Futures Trading Commission (CFTC) located in Washington DC,
requesting answers to some of my questions above. In reponse, Mr.
Chilton replied to me with the following (the below message has not been
altered in any way):
“Your point is that there are at times price
differences between gold in Hong Kong and gold elsewhere, including New
York. I know that when our folks looked at this in the past, they found
that there are restrictions placed on gold flows into China which likely
accounts for the differences (in other words, the Chinese gold market
is not a freemarket). To date, the market surveillance folks are not aware of any
manipulative activity in the COMEX gold futures market. However, I think
what has been going on certainly deserves closer attention. The simple
existence of price differences between different markets isn’t
‘incontrovertible’ evidence of manipulation. Price differences usually
reflect differences in supply and demand at the different locations or
the effects of impediments to the free flow of the commodity at one
point but not at another (such as governmental restrictions). While
price differences may suggest improper activity, it would be much more
likely that the untoward activity occurred on the smaller and less
liquid market (ie, the Hong Kong Market). I am not convinced that what I have said is what is going on — just
what I have been told in the past. I will try to get some more
information for you.”
In response to Mr. Chilton’s message, I noted
the following in another message that I sent to him recently that
continued our correspondence:
I am aware that Chinese markets are very highly
regulated but that does not necessarily mean because the market is
smaller and less liquid, that this market is the one being manipulated
to a greater extent than the one in New York. To address
this issue, I only have two further points (albeit long ones):
(1) According to Zhang Bingnan,
the Beijing Gold Economy Center President, “Gold prices in China should
be 1 yuan a gram, or more than $4 an ounce, higher than the overseas
market on average. The premium is a result of the spread between bids
and offers in different bullion markets and the exchange rate.” Is
this a reasonable statement to you, or are there perhaps other reasons
that explain why the premiums are so vastly greater in Asia’s futures
markets for gold than the $4 an ounce premium that Zhang Bingnan stated
should be the reasonable expectation? The spreads for the past 10-12
weeks have consistently been $30, $40, $60 and even as much as $100 an
ounce between the highs in Asia’s futures markets for gold and the lows
in the New York futures market for gold.
As I inquired in my previous message, can you
let me know if American banks or investment firms are using these huge
arbitrage opportunities to enter and exit short futures contracts the
same day or within a 48-72 hour period over and over again? If I am not
mistaken, the CFTC should have access to this information.
If this has indeed been occurring, would it be possible to let us know
who these firms are, and if not, is there any reason why this
information needs to stay secret? If this has occurred, while not
evidence of manipulation, would this not be evidence that arbitrage
opportunities are being leveraged to earn enormous profits in a manner
inconsistent with the reasons why future markets were established? And
would this not be grounds for further investigation?
(2) Secondly, Mr. Chilton, you stated to me
that manipulation is most likely occurring in the Asian gold futures
market and not in the New York futures market. If this is the case, then
why are the spot prices established in Asia much closer the the prices
of gold established in physical markets than the spot prices established
in New York? Right now, there seems to be four different markets for
gold. The spot price in Asia, the spot price in New York later that SAME
DAY, the price of bullion (which is often selling at significant
premiums over spot) and the price of gold coins (selling for even a more
significant premium over the spot price).
While I do understand that soaring demand for
physical gold, both bullion and coins, are setting higher prices for
purchase of physical (real) gold than the prices in paper markets, I
still believe that this begs the question of “what is wrong with the
price of gold in the paper COMEX markets?” Perhaps I’m unaware of
previous occurrences of enormous price spreads of this nature between
physical markets and paper futures markets and this has
happened before with some reasonable explanation. If you may be able to
provide an example to me of previous times in history when spreads of
15% to 40% existed in physical market prices over the prices established
in futures markets for the same commodity or asset, then perhaps it
will help me understand what is going on with the prices of gold in the
COMEX markets. My quest really is to understand the
anomalies that seem to still be occurring between the price of gold in
the physical markets and the price established in the COMEX paper
futures market.
To my second correspondence noted above that I sent over 2 years ago, I received no reply. Of all the commissioners on the CFTC, I think Bart Chilton is the most receptive to listening to allegations of manipulation in the gold and silver futures COMEX markets. Looking back at this correspondence in retrospect, I don't allege that I had concrete evidence of manipulation in gold futures markets more than two years ago as I would need access to the books of the metals traders at HSBC, JP Morgan, et al, to prove that. However, the anomalies that I pointed out to the CFTC were so massive that I had hoped that it would spark a serious investigation into the integrity of operations in the gold futures markets. Unfortunately, I believe that Brooksley Born serves as a fine example as to what will happen to a CFTC employee that stands up for honor and integrity in the face of fraud.
About the author: JS Kim is
the Managing Director of
SmartKnowledgeU™, a niche
wealth consultancy firm that tirelessly analyzes the
institutionalized fraud of our financial system to consistently
identify assets that have the best long-term
lowest-risk, highest-reward potential.
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One of the biggest points here regarding the manipulation by Morgan and co is that the SLV custodian is JP Morgan. Conflict of interest much?
Isnt the issue paper vs pyhsical? Derivatives trading are condoned by the powers that be such that manipulation my occur so that they believe the have a tool to "control" the price.
Fractional Gold has been around since the IMF was created, the issue I believe is that there is clear evidence of COLLUSION in trading, primarily on the COMEX to create the waterfalls that are regularly witnessed.
Is Collusive trading illegal? Certainly its immoral, the FBI arrested many CME members in the 80s for collusive trading. I have no problem with the bullion banks playing repo games with their paper Gold positions but I am deeply offended by the clear collusion that goes on in these markets and at the very least the CFTC has to end this, they have to, otherwise they are nothing.
Will not be holding my breath....
My response to the census is sure to put me on an "enemies" list. I've had about as much as I can take.
This stuff just keeps coming
"JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy"
http://www.bloomberg.com/apps/news?pid=20601087&sid=anW3hAG0Zw5k
This will only feed the growing wave of lawsuits. Question is will these institutions be cut free from public backstops before the resulting awards and settlements hit the fan?
If the frauds are big enough, it will all come out.
I worked for awhile for one of the '3 letters' and can assure you that if there are more than a TINY number who know something sexy / dangerous / etc., the secrets WILL come out.
My hunch is that there is monkey business going on with COMEX, bullion banks, and the Au shorts. If so, and when MUCH MORE comes out, then gold and silver fly to the moon.
The above correspondence and yesterday's McGuire material are not enough. Much more needs to come out to prove anything.
I do hope that whistleblowers and GATA keep hammering away and bring out the frauds that most of us suspect are there.
Truth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded “anti-American,” “anti-semite” or “conspiracy theorist.”
Truth is an inconvenience for government and for the interest groups whose campaign contributions control government.
Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt.
Truth is inconvenient for ideologues.
Quote Paul Craig Roberts
LOL. Yes, a commodity that does nothing but go up for years and years is only manipulated on its down days. The days it's down "Mommy, mommy, manipulation!"
The days its up "Gold is the best investment since tulip bulbs."
Has it ever occured to you that when it goes up in Asia, that people might *gasp* take profits the next day?
Oh wait, that's logical. How dare I say something logical that goes against a half baked conspiracy theory.
Gold bitchez?!? Alright. Now I fit in with the "intelligent" side of the argument.
Seriously. It went up in another market, and then it went down here. That's your best PROOF of manipulation?
Oh wait, there was another article the other day from 2002 that it was manipulated... before it tripled in price.
Those manipulators sure do a good job of keeping the price down when it triples...
How can an asset triple and people make the argument that it was manipulated downward? That doesn't make any logical sense, even on its face.
But oh look, here's some graphs that it went up in Asia and down in America. THAT is all the proof you need.
The goldbugs deserve to lose their money if they believe this crap.
With all due respect, MB, you are sounding a bit adolescent on this one. The manipulation isn't intended to keep the price going lower necessarily. In fact, the larger picture is a slow and controlled devaluation of the dollar, thus controlling the inevitable price rise and making tons of money doing it. I suggest it is worth considering, as an indication of where prices might be going eventually, what the price would be without these continual and predictable raids.
You are an entertaining little enuch, especially how you always tout your superior intellect and analytical skills; of course, we are still waiting to see any evidence to support your delusions. This is meant for Bates, not you Rick.
I guess you didn't read the other article where a metals trader(Maguire) called the trades in silver before they happened and said it was common knowledge that they were manipulated. So if it happens in silver it doesn't happen in gold. Don't worry I believe gold manipulation will be exposed too as well as some other investments. As far as tripling it should have and more. With more people investing in gold there is big money in knocking out the shorts, and why wouldn't it go up with more and more people investing in it.
no im sure he did. he never posts up on articles like the one you mention because you cant refute what the london trader emailed to the cftc.
Good post. This is proof that they ignore any logical argument.
From: Bart Chilton
To: JS Kim
CC: Andrew Macguire.
Message: Fuck You and Fuck off.
Perpetually Yours,
Bart Chilton, (et al) @ CFTC
..strong letter to follow.
Excellent Post JSK. It is tough to push against a huge machine as you have been doing for a long while. The US has a highly sophisticated shaming mechanism that is used (effectively) to marginalize truth.
Sadly, nothing will come of this. Our republic is no more. The rule of law applies to the peasants alone.
"Unfortunately, I believe that Brooksley Born serves as a fine example as to what will happen to a CFTC employee that stands up for honor and integrity in the face of fraud."
A corrupt system will expel and extinguish any force that tries to impede or expose the corruption. This is an example of an unspoken conspiracy. No one need discuss the desire to punish someone who is about to expose the corruption. It is collectively understood what needs to be done. The "culture" takes care of itself, it "heals" itself by "attacking" any invading foreign bodies that would or could do harm to the corrupt system. It acts in the same manner the human immune system acts to reject or attack a virus or infection.
While you may be right, it seems to me there is room for argument.
Cynicism is easy enough, especially under prevailing conditions. But when it annihilates hope, it goes too far. It effectively celebrates nihilism.
Conditions can change. And hope, while discredited as a concept by our recent presidential campaign and election, remains essential to any constructive action whatsoever.
Promotion of hopelessness, imo, sells inaction and a sullen embrace of impotence vis a vis corruption. It's completely disabling and lavishly counterproductive. It effectively serves the needs of the corrupt system. It "empowers" nothing but surrender.
I'm expecting honor to have its day yet. The system might not appreciate it, but real people living real lives have more at stake, both individually and collectively, than how well their actions payoff in dollars and career advancement.
This is why while I admire Ron Paul and can't find any inconsistencies in his actions or words, it makes me wonder how he has lasted this long in a corrupt and perverse environment.
+1000
blablabla...nothing new to see here.
Exactly, Gold is a rat trap like in March 6, 1933 and March 18, 1968 and August 15, 1971
story of London Gold Pool 1960-68
http://www.nolanchart.com/article6535.html
When you need the insurance, it's like Oakland was to Gertrude Stein, i.e. "there's no there, there." As the fire burns, you feel comforted; as the flames are gone, so is the gold. Who pays off the CDS on the USG and in what species is the payout?
blablabla...nothing new to see here.
That's not the point.
Continued documentation is the point.
At both the micro and macro levels. Not to mention everything in between.
People just need to keep a detailed diary and manage their materials properly at work, pursue sound strategies, and do the right thing on the whistleblower level. On the media level, we just gotta make sure we send this stuff around . . . and TD et al keep posting it.
ZH could even become an inspiration to whistleblowers. I suspect attorneys who handle those cases would love to buy ad space on a site like that!