Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

U.S. Government Investigation of Gold Price Manipulation

Commodities / Gold and Silver 2013 Mar 15, 2013 - 04:16 PM GMT

By: Midas_Letter

Commodities

Yesterday, the Commodity Futures Trading Commission, the regulator who ostensibly regulates the banks and major financial institutions who participate in the futures and commodities trading business, announced they were going to examine whether prices are being manipulated in the “world’s largest gold market”, according to a story in the Wall Street Journal.

For long time observers of the gold price and the fundamental and not-so-fundamental influences on its price movements, the announcement might have elicited a gasp of delight in the spirit of “It’s about time!”


No such excitement or relief will be long-lived, however. According to the Wall Street Journal piece, “The CFTC is looking at issues including whether the setting of prices for gold—and the smaller silver market—is transparent.”

Gold and Silver Spot Price

They’re referring to the process whereby twice daily, in the case of gold, and once daily, in the case of silver, the spot prices for those metals is set by teleconference by representatives from each of five banks: Barclays, Deutsche Bank AG, , HSBC Holdings, Bank of Nova Scotia, andSociété Générale. The silver pricing involves Bank of Nova Scotia, Deutsche Bank and HSBC.

While that process may indeed be compromised in terms of legitimacy to some degree (what process involving a major financial institution is not?), barring the revelation of large scale collusion and outright arbitrary price setting, it is not expected to unveil any major irregularities. That’s because the manipulation of the prices for precious metals is not a case of overt nominal manipulation. The prices set by the participants in the daily teleconferences is set by an examination of the existing orders to buy physical gold, versus orders to sell. More sellers than buyers, the price goes down, and vice versa.

The whole exercise is an opportunity for the perception management team at the banks to prove that, “Hey! See? The spot price of gold isn’t manipulated!” Well nobody is pointing to the setting of the spot price and saying that it has ever been manipulated. That’s a Red Herring of the first order, and this whole charade will be nothing more than a PR stunt that will feed media and justify mainstream media skepticism for years to come.

Futures Market Needs to be Regulated

It is the persistent unlimited origination of contracts for both gold and silver in the futures market for future purchase and sale of gold and silver many times the possible global supply that constitutes manipulation, in that they influence the demand for physical gold and silver by signaling future price direction. Which is contrary to the original function of futures markets, which was to provide a framework whereby banks could determine how much to lend a farmer for seed and equipment in the spring by estimating the price for the crops he would sow when harvested in the fall.


Amount of open interest was at an all year low at the end of August, which set the stage for physical demand to take the price higher.

The mechanism was maintained as a future price discovery tool by the existence of limits on the amount of commodity that could be traded in the future market based on what the total possible future market supply could be. Futures markets in wheat, for example, pre-empted by regulation any end-user, or buyer from issuing contracts to sell or to buy more wheat than could be produced in a given year.

Historically, the futures contract price for wheat was determined, simplistically, by a model that incorporated total world demand for wheat at time of sale versus total world availability of wheat relative to the cash price for wheat now. The participants were the farmer (supply) and the bank (financier), as well as the baker (demand). The financier’s role was limited to figuring out how much to safely lend the farmer, and also how much he could back the baker’s commitment to future delivery of wheat a set price. These were culturally governed roles where the interests of all participants was aligned toward mitigating loss and maximizing profit by offsetting risk.

As the futures exchanges evolved, and banking became more of a predatory profession as opposed to a facilitative one, the futures contracts themselves have become the objects of a gambling casino, and one where the house is the banks, as they originate and “roll over”, or negotiate a new contract sale or purchase instead of making good on a failed transaction. The commodities exchanges became gambling houses, where punters could buy and sell contracts without any intention of actually delivering or taking delivery.

The modern gambling hall is NYMEX and COMEX, where, with the cooperation of the CFTC and other government regulators, the rules governing the establishment and sale of futures contracts have been stripped down to the point where, today, futures contracts are originated with no requirement to reflect the actual supply and demand of any given commodity. They create the supply in paper form, and collude with each other to roll over contracts and swap losses in various further derivative instruments, and the net effect is a complex system of wagering and hedging that lets the banks drive spot commodity demand by generating as much paper supply as they require. Purchasers of the physical commodity are thus induced into selling, or refraining to buy, gold, silver, oil and any other commodity such a racket can be set up around.

This probe is meaningless, and a mere publicity stunt.

Bart Chilton Strikes Again

The idea was put forward by CFTC commissioner Bart Chilton, who said, “The idea that pervasive manipulation, or attempted manipulation is so widespread, it should make us all query the veracity of the other key marks. What about energy, swaps, the gold and silver fixes in London and the whole litany of ‘bors’?” he said, referring to Libor, Euribor and other benchmarks.

Bart’s last investigation into specific irregularities in silver trading, announced in 2008, was never formally concluded and no results have ever been announced. It appears to have been quietly swept under the rug, as the New York Times requests for comments were not responded to.

Until the regulatory deficiencies that permit exponentially excessive contract volume in futures and forwards, collusion among the major market participants, and no limit on positions by speculators are addressed, all of the misguided and sham investigations the CFTC can muster will have the same predictable outcome – business as usual for the futures markets participants who inflate, confound, and thus manipulate the prices of gold, silver and every other commodity they choose.

James West is the publisher of the highly influential and widely respected Midas Letter at midasletter.com. MidasLetter specializes in identifying emerging companies in gold and silver exploration at the beginning of their share price appreication curves, and regularly delivers 10 baggers (stocks that increase in value by at least a factor of 10) to his premium subscribers. Subscribe at http://www.midasletter.com/subscribe.php.

© 2013 Copyright Midas Letter - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Midas Letter Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014