This page has been archived and commenting is disabled.
Are Big Banks Using Derivatives To Suppress Bullion Prices?
Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,
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.
- 74421 reads
- Printer-friendly version
- Send to friend
- advertisements -



SGEI will soon release the Chinese Yuan Fix and the LBMA fix now includes BOC and soon ICBC. Do I hear cornering of the FIX??????????
West has ZERO control
Wait, what does Bart say?
Good for you Tyler. Keep posting this story - as long as it remains true. Keep up the pressure on the cabal.
Some of the commentators have indicated that they are tired of this story, and that it is "old".
I am never tired of trying to expose fraud and insider trading. If we allow an elitist cabal to continue to manipulate markets with what essentially amounts to public funds (given their power to create money) we will lapse further into tyranny.
PM's get a lot of attention, which they deserve, but I wouldn’t be surprised if other markets are not also being manipulated as well. For example, it seems to me that having crude trade extensively in the low 40's earlier this year came at an awfully convenient time to pressure Russia's revenue stream during the Ukraine crisis.
I would caution on staying with the facts however. You state in the article:
“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.”
This behavior is normal and expected in commodity markets. It is not unusual for true speculators (those who are not government entities with a political and control agenda) to settle contracts in cash. This provides liquidity to hedging users and is a useful market function – if legal position size limits are adhered to in accordance with position size limit rules that the CFTC should be enforcing, but is not. It is also not unusual for open interest to exceed the actual amount of physical available for delivery – this happens often in the commodities market when legitimate hedging and speculation is going on. I am happy for us to be critical of manipulation, but let’s keep the facts straight.
The issue is that rules designed to prevent markets from being "cornered", including position size limits, are being violated with impunity by the cabal. We need to stay focused on the violations, not normal market behavior.
Kedi makes some good points in his response to this post, but he does not address the potential for insider trading that exists when markets are manipulated - which is also a big concern.
What I call the cabal (an illegal collusion between the central and money center banks, with the complicity of the regulators) will continue to manipulate prices until the legitimate futures trading and hedging community rebels. As it is still relevant, I am reposting my appeal made to ZH, because of its readership, to take action below:
teutonicate July 4th ---------------------------------------------------------
Tyler, even if only half of what you appear to be disclosing in this article is true, it has to represent a significant piece of investigative journalism that is worth pursuing like a pit-bull.
Before we all go off the deep end, I would like to suggest that ZH use its leverage as an extremely well-read medium to contact the CFTC, COMEX, Federal Reserve, Citi, and JP Morgan directly and simultaneously to request an explanation. I would also suggest that it be copied to all sitting members of Congress. As you usually do, it would be great if the exact content of the letter got posted on ZH, as a public audit trail for the process.
Even if some of these facts have been misinterpreted, I think the public has a right to know how we have misinterpreted them, and what the truth actually is.
The substance of the communication would be a summary of the facts you have already discussed and a simple query: "What do you want us to do with this?" I think you may have a lot more leverage than you think right now.
I'm not sure there is an award for exceptional journalism on the internet, because I think that process is probably controlled by the cabal as well.
Either way, hats off to you guys at ZH. Keep the pressure up. I think a lot of your readers are very proud of what you are doing.
Thanks to all of those ZH readers that supported this post by up-voting it.
I am adding this addendum to my post because, at the risk of insulting the intelligence of those ZH readers that are more knowledgeable about derivatives than I, I thought that some explanation might be in order for some of my assertions about position size limits and other regulatory measures intended to prevent market abuse. I also note that ZH has emphasized in this last article the significance of OTC derivatives to the analysis, which I believe I may have neglected in my comments.
To put the concept of commodity market abuse into historical perspective, and to reinforce in the mind of the reader the contempt that the CFTC and US government once held for at least some abusers of commodity markets, I would suggest that the reader search “Hunt Brothers Silver” on one of the search engines. This will yield numerous links which describe the vigor with which the Hunt Brothers were prosecuted when they attempted to corner the silver market back in the 1970’s. How times change. It appears that today if you are a member of the cabal, you are immune from the same level of scrutiny.
The Hunts were successful at controlling the silver market because they accumulated a substantial silver position as compared to industry production and the positions of other competitive parties holding silver in the market. This substantial position allowed them to effectively control the price of silver, similar to what is currently being done by the cabal. In those days the brothers chose to use the physical ownership of the silver (rather than derivatives) because they had the financial capacity (both equity and borrowing power) to do so.
ZH rightly points out that during the Clinton administration, the premise that OTC derivatives should be regulated was addressed but rejected under cabalist (Alan Greenspan, Robert Rubin, Lawrence Summers, Arthur Levitt) pressure. For this reason, it appears (based on the disclosures to which we currently have access) that a substantial portion of the cabal’s derivative silver holdings may not currently be disclosed and may not currently be legally subject to the position size limits that would normally be in place if they were subject to regulation by the CFTC.
Or, in the alternative, the CFTC may be negligently, consciously, or under pressure from the cabal, choosing not to exercise that discretionary regulatory authority it may have to call this situation to the attention of the US government to protect the public from market abuse. I am not a scholar on derivatives regulation law, but if this latter scenario is true, one would think, letter of the law aside, that a properly motivated CFTC would have addressed this situation long ago.
a situation that does not occur in other futures markets? Really? Does it not occcur in FX, Interest Rate, Equity and other Commodity markets?
Paul as a supply side economist you should know that there is no supply side element in ANY of today's 99% paper markets.
http://roacheforque.blogspot.com/2015/07/our-modern-era-of-unlimited-sup...
"Computer says No".
At what point does this change?
When silver and gold in physical form run out. They will do and signs are appearing that this is getting closer.
Something else hits the big banks for six (English cricket term for you Yanks :) ) - making them unable to continue the charade.
Cricket bat is in hand :)
MauritiusGold,
Mauritius is a top country!
Bullion price is being supressed by the GARGANTUAN ammount mined every year.
Last year almost a BILLION ounces of silver were mined... how many TONES of silver do you want to buy ?
Gold and silver are far from "rare"
you are just an idiot because what matters is the demand. If 10 billion ounces are mined but the demand is for 100 billion, what do you think should happen?
Sorry, couldn't help myself ..
Actually, it was 877.5 million ounces (mined in 2014) --but,
"Total silver physical demand stood at 1.07 billion ounces last year..."
https://www.silverinstitute.org/site/2015/05/06/key-components-of-global...
I look at these things by dividing it by 7.2 billion people in the world. That isn't very much silver per person. That's why the central banks use paper.
and yet to be gargantuan to explain the math it would need to be 10 TRILLION ounces.
For those who actually USE gold in products, the price is OK. It's only the non productive speculators who complain.
The vast majority of Gold is used in jewelry. Silver, too. Silver used to be used in photography, but not since the digital age. And, Hell, with everyone struggling, ain't nobody is buying jewerly.
They have these new thingys called hand helds...they need silver...some people have them nowadays I hear.
How about those 'nonproductive speculators' known as miners? Don't think they complain?
The real hilarity of all this is that price suppression is decreasing the potential supply...
What I don't understand is that with all the paper suppression put one side, why are people able to take physical possession of the PM's with no real spread to the paper price.
And it will stay that price, even when none is available. Just like sausages in the USSR. 50 rubles all day and all night. They just never had any in stock. It will happen eventually.
Of course they are. Duh.
I think that the derivatives experiment is about to show a serious shortcoming without a reliable benchmark like gold.
So derivatives have expanded the possibility that price fixing occurs with regularity. You make the data fit the math when the math doesn't cut it.
And it is very possible the central banks and/or the treasury is taking the short side of the exploding OTC precious metals derivatives positions, backed by their capacity to create unlimited fiat to make good on cash settlement of the positions. Just as the ECB has facilitated the european banks exit from their exposure to Greek debt, our Federal Reserve is likely absolving J.P. Morgan's and Citi's exposure to precious metal price increases, all on the backs of the middle class of America who benefits not one iota from any of these derivatives games.
Yet another PM manipulation article that can't articulate the "why" this is happening. Low PM prices benefits bankers cause....?
That's right, go ahead and down vote despite having no answer.
The answer is the article: the entire article.
You didn't even read it.
Low precious metals prices in paper means that paper has the highest value which means the banks are in charge.
This inverts one day then the banks are broke.
"Low precious metals prices in paper means that paper has the highest value which means the banks are in charge."
Unintelligible. "Low means high?"
Again, no one can articulate why {whoever] want to keep PM prices low...
fully intelligible. Try again:
banks are king of the world with paper money being king
paper money to be king requires metals prices be shit
period. When metals prices aren't shit the banks are burned
I don't believe in Regulation. It certainly hasn't worked anywhere else for the purposes intended. Instead it eventually hires the very people whom it once regulated...who then structure the regulation in such a way that it will be beneficial for their former business. And then they make a triumphant return to business.
No. We do not neet OTC regulation.
The root of Banks' power lies not in themselves, but in the assignment of privilege from the governments of the world, which the rest of us lack.
What is that privilege?
The right to sell things that they do not have and cannot deliver. Fractional Reserve privilege. Can a car dealer sell you a car, and then sell the exact same car to the next customer? No! It is fraud! Both customers cannot take possession!
Yet, when you deposit your money in a bank, the bank promises that it is still your money, which you can draw on demand...and then loans it to someone else and promises that they too can draw it on demand.
Both customers, depositor and debtor cannot simultaneously drive that car home. It is fraud.
And worse...this is the case for a normal savings or checking account. Investment accounts are both worse and better. They are worse because the bank can sell the use of your money to more people simultaneously - lower fraction - meaning they can essentially invest the full amount, minus reserve, in business A, AND in business B. Obviously Business A & B cannot both drive that car home simultaneously. It is fraud.
They are better, because at least they don't promise YOU the immediate use of your full amount.
Revoke the banks' privilege to sell exclusive use of the same money to multiple buyers simultaneously, and your OTC problem - and a great many other manipulation problems from bankers - will disappear overnight.
If you are an investor, you should not believe yourself to be a depositor.
If you are the recipient of investment, you should not believe your stock has been purchased with money, when it has only been purchased with an option on money.
Those things are fraud. Eliminate the fraud, and the problem requiring regulation disappears.
The problem is fraud. Fraud is, by its very nature, not possible to regulate. For the regulator too becomes an object of fraud. It is only possible prohibit and punish fraud.
All the charts of everything are declining due to deflationary pressure.
Half the people do not have the money to buy a single ounce of gold.
A record 93 million are not working.
"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."
You are talking about the supply of coins. commodity demand is falling.
I had to leave last night, and wanted to say thanks for the replies...To dog will hunt: I correct myself, I should not have said "fixed" I should have said "another version", sorry...but you did not have to be so mean...ya big meanie :-) Actionjackson: not raising goats anymore, I am growing alot of food tho (and marijuana now that its legal) lol... PrimeRib: I am so glad you posted, I am in Oregon and thanks for the song link. And wino911, please post more often....thanks ya all.
Why buy gold and silver eagles? What else do you do with federal reserve notes? Everything else can be taxed or confiscated in a real crisis. You think you own that farm you bought when people have no food to eat? You think you own the stockpile of food in your home when your neigboors are hungry? At least gold coins are easy to hide...
In a crisis taxes go to 0% or 100%, 0% for those who are well-armed.
There are no 'naked shorts' in the futures markets In the equity markets selling without locating a borrowed stock allows extra selling pressure on the market and is kind of a rigged game given that all you have is an institutional broker 'promise' to deliver the stock.
In the futures markets the vast majority of contracts are 'naked' and so the term is not used. The margin is small, around 8%, but still there.
There are at all times exactly as many long positions in a futures market as there are short positions. Bullion banks don't care about price trends. They hedge physical inventory and otc derivatives positions from providing forward selling services to miners.
What's this I hear? Gold and silver are discounted in paper price until paper goes tits up?
Back up the truck bitchez & check those boats for holes.
good i hope the gov and banks continues their efforts no problem here