Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
Gold Bullion Price Buying Opportunity for 2017? - 6th Dec 16
Shariah Gold Standard Approved for $2 Trillion Islamic Finance Market - 6th Dec 16
THE Gold Play for 2017 - 6th Dec 16
Trump Sets The Stage For A Huge Gold Rally In 2017 - 6th Dec 16
BrExit Tsunami Claims Emperor Renzi's Scalp, Counting Down to End of the EU, Next? - 6th Dec 16
Failed EU - Means an Expanded Dictatorship - 6th Dec 16
Crude Oil Prices: "Random"? Hardly - 5th Dec 16
The Coming Stock Market Crash and WWIII - 5th Dec 16
This Past Week in Gold Market - 5th Dec 16
Stock Market Short-Term Correction Underway - 5th Dec 16
If Trump Doesn’t Do This, We Will Have the Great Depression 2.0 - 5th Dec 16
India’s Demonetization Could Be the First Cash Domino to Fall - 5th Dec 16
Our Future Economy, Jobs, Banking, And Governance - 5th Dec 16
Gold and Silver Bullion Buying Opportunity for 2017? - 4th Dec 16
First UK BrExit then Trump, Next BrExit Tsunami Wave to Hit Italy HARD Sunday! - 3rd Dec 16
The 10YR Yield and SPX Stocks Bull Markets - 3rd Dec 16
Gold And Silver – Do Not Expect Much Difference With Trump Compared To Obama - 3rd Dec 16
Gold, Currencies and Markets Critical 61.8% Retracements - 2nd Dec 16
Gold Junior Stocks Q3’16 Fundamentals - 2nd Dec 16
Adventures in Castro’s Cuba - 2nd Dec 16
We Are Putting Off the Inevitable - 2nd Dec 16
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16
Referendum Puts Italy's Government to the Test - 30th Nov 16
Why We Haven’t Seen Gold Price Rally after Trump Victory - 30th Nov 16
Breakdown and Slide in Crude Oil Price - 30th Nov 16
A 'Wicked Rally' in Gold Price Predicted - 30th Nov 16
Silver Market Sentiment Looks Golden - 30th Nov 16
Indian Demonetization Denotes Severe Stress in the Global Gold Market - 30th Nov 16
Owning Gold and Silver in Troubling Times - 29th Nov 16
Trump's Presidency - Stock Market Crash or Start of New Mega-Trends - 29th Nov 16
Prime Minister Modi's War Against Corruption, Black Money and Fake Currency Notes in India - 29th Nov 16
Can President Trump Really Drain the Swamp? - 29th Nov 16
President Trump’s Economic Plan Isn’t Going to Work - 29th Nov 16
The US Bond Bear Market Has Begun! - 29th Nov 16
Simple Yet Powerful Technical Trading Tools - 28th Nov 16
Public Infrastructure – Welcome to the World of Waste, Fraud, and Abuse - 28th Nov 16
Fifty Years Later, Moore's Computing Law Holds - 28th Nov 16
An Elusive Stock Market Top - 28th Nov 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

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

© 2005-2016 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

Catching a Falling Financial Knife