Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Metals Market Manipulation - What Big Banks Are Hiding from You Now

Commodities / Metals & Mining Dec 31, 2013 - 11:36 AM GMT

By: Money_Morning

Commodities

Remember the outrage last July when we found out owners of giant metal storage warehouses, folks like Goldman Sachs and JPMorgan Chase, were delaying delivery of stocks of aluminum so that they could collect more rent on them?

We learned that, since Goldman took over some industrial warehouses in Detroit, the delivery time for aluminum went from six weeks to 16 months.


That got a lot of people mad because, in case you can’t add two and two, raising metal storage costs increases the prices producers who use the stuff pay for it. And of course, they pass those price increases along to consumers.

The CFTC began an investigation. The Justice Department is looking into it too. But not wanting to wait, the London Metal Exchange (LME) acted right away.

The LME is the world’s largest metal exchange. And they oversee the 778 privately owned warehouses (75% of which are owned by just five companies) that stockpile metals traded on the LME. So they got a lot of bad publicity from the fiasco. The LME threatened warehouse owners with a slap in the face if they don’t cut back delayed delivery times to only 50 days, starting April 1, 2014.

Too bad they were a day late and a few million tonnes of metal balls short.

The warehouse owners, it turns out, were already fixing the problem themselves – and have been for three years. Not because they were hell bent on getting ahead of LME rule changes and applying a market solution to a regulatory problem…

But because there’s more money in smarter manipulation.

Since 2010, warehouse owners have been building huge warehouses that aren’t governed by LME rules. According to a Wall Street Journal article from Friday, they’re storing hundreds of millions of tons of metals – like aluminum, copper, nickel, and zinc – in these “shadow warehouses,” as opposed to in LME-sanctioned warehouses.

Let’s use aluminum as an example. Analysts estimate that while there’s about 5.5 million tons of aluminum in authorized, LME-approved warehouses, there’s even more in shadow warehouses – probably between seven and 10 million tons.

Now, here’s the part where I tell you why they’re really doing this, so you don’t get fooled by what you read anywhere else.

Some analysts will postulate that storing millions of tons of metals in “off-exchange” shadow warehouses – while the world looks to spot and future prices posted at the LME as indicative of “real world” prices – will cause price collapses if huge stockpiles of warehoused metals flood the market.

Oh the fear of deflation! I’m shivering in my boots.

Don’t worry. The chance of that happening is exactly between slim and none.

It doesn’t mean metals prices won’t go down. They sure could. It means don’t expect them to go down and stay down, because that ain’t gonna happen unless we get another 2008 meltdown.

Here’s the real reason shadow warehouses are stockpiling metals…

By keeping the true levels of stockpiles from the public metals miners, financiers of metal stockpiles and warehouse owners (of course I’m talking about some giant banks and behemoth metals mining and trading corporations, like Glencore Xstrata Plc., that run this monster game) can profit from information others don’t have.

By casting stockpiles into the shadows and reducing transparency, manipulators can increase volatility, which of course is the essence of trading profitability.

How? Two ways.

First of all, if metals are taken out of the market, removed from the numbers that are counted that determine prices in a supposedly free market price discovery exchange, prices will go up. Now, if you own warehouses full of the stuff, that’s a good thing, right?

Second, there’s a futures market. That’s what they trade at the LME, futures on these metals. If the price of metals is expected to rise, futures prices for those metals will rise too. (This part gets a little technical, but hang in there with me. The payoff is big.)

When you go out on a “term basis” (in time) in the futures market and prices of further and further out delivery months are progressively higher and higher the more distant the futures expiration date, that’s called “contango.”

Metals futures prices are in contango for this reason. If you bought metals today that you needed to store, and you had the option of not buying and storing the metal today but buying the same amount via a futures contract for delivery to you in six months, the person selling you the futures contract might be the owner of the metal today, and he’s being charged for storage. So he will charge you a higher price for the futures contract to make things even. That’s part of what causes contango.

Now think about that.

If I own metals, and I store them in shadow warehouses, and the true amount of that metal in all warehouses isn’t known, but it’s believed to be less than there is (because I’m hiding mine), the price today will be higher. And since I’m charging a lot to other metals stockpilers in my LME warehouses and delaying delivery to collect more rent, which also raises the price of the metal today and therefore raises the futures prices across all delivery months, with the further out being more expensive… guess what. I can sell (short) long-dated futures contracts that I’ve artificially helped manipulate higher to finance my storage of the same metals in all my warehouses. That reduces my cost and increases my profit.

By manipulating stockpiles, smart operators can make money lots of ways.

Another way is by trading the volatility they create in the pricing structure. After all, they are manipulating the prices. If they want to dump stockpiles and trounce prices, don’t you think they’ll short the overpriced futures to profit from falling prices they force down? If you short enough, so what if the price of what you have stockpiled goes down? You will make more on your futures short if you’re a smart cookie. And these guys are smart.

And then they will buy more physical stock and futures at the bottom of the panic-selloff and profit from the price rise too.

What we have here is the freely manipulated market owned by giant banks and corporations freely manipulating everything they can because of their massive size and because they own the means of production, storage, pricing, and the officers of the armies that protect their wealth.

Welcome to the big bank- and mega corporation-owned banana republic of Earth.

Shah

Source : http://www.wallstreetinsightsandindictments.com/2013/12/look-big-banks-hiding-now/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 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

6 Critical Money Making Rules