Metals Market Manipulation Update: Are The Metals markets Rigged? Do Fish Swim?!
Commodities / Market Manipulation Apr 06, 2010 - 02:31 AM GMTBy: Jim_Richter
During the time I have been writing this newsletter, I have frequently mentioned the blatant manipulation of the gold and silver markets. For background on this issue, please see my article in the May, 2009, issue. The manipulation of gold has been accomplished primarily by central banks selling or leasing gold into the markets so as to artificially depress the prices. The bullion banks (e.g., JP Morgan, Goldman Sachs and others) have also helped suppress the prices of gold and silver by selling them short on the commodities exchanges.
Most of the time, I have focused on the gold manipulation schemes. That is because gold is the ultimate form of money, so it is the primary target of all those who benefit from the current fiat money system. However, silver is also a monetary metal. When the silver price rises, this can also be a sign that something is rotten in the fiat currency world. In addition, silver is a very important industrial metal. No doubt, there are parties who benefit from being able to buy silver at artificially depressed prices for their industrial needs.
Through the work of the Gold Antitrust Action Committee (GATA) and noted silver expert Ted Butler, we know that there has been a huge short position in silver on the COMEX for several years. According to Butler, as of March, 2009, the short position was equal to 154,190,000 ounces of silver, or 23% of total annual world mine production. In all likelihood, the primary perpetrators were JP Morgan Chase and HSBC. Their huge short positions have artificially depressed the price of silver, and they remain the primary silver market manipulators. The CFTC has done absolutely nothing about this, even though it is supposedly illegal for anyone to hold concentrated COMEX positions, either long or short, in an attempt to manipulate the market. Ted Butler once said that the CFTC's performance has been "...akin to tripping over and not seeing the dead body in a murder investigation."
The silver manipulation has actually worsened during the past year. Earlier this year, Mr. Butler reported that JP Morgan Chase had increased its COMEX short position on silver to a number of contracts equivalent to 40% of the COMEX silver market and 30% of annual world silver production! JPM's short position has been the primary reason why the silver price is not much higher. To his credit, Ted Butler has waged a crusade to get the CFTC to establish position limits, as well as rules limiting concentration. Bill Murphy and Chris Powell, of GATA, have also waged a continuing battle for honesty and transparency in the precious metals markets.
On March 25, 2010, the Commodity Futures Trading Commission (CFTC) held a day-long hearing in order to consider testimony from experts as to whether it needs to write a rule to create speculative position limits for gold, silver and copper markets to prevent price manipulation. Even before the hearing was held, it was unlikely that anything meaningful would happen. The chairman of the CFTC, Gary Gensler, is another Goldman Sachs alumnus who has now found his way into the federal government. During the past two decades, Goldman has been very heavily involved in rigging the precious metals markets.
Only one of the five members of the CFTC, Bart Chilton, has been even mildly sympathetic to considering the evidence of metals market rigging assembled by GATA and others. Prior to the hearing, Mr. Chilton was quoted in the press as having said that, "At this point I don't think there is support [for enforcing rules on position limits] on the commission. I hope this [hearing] will be educational, informative and it may shift opinions in favor of position limits for metals."
The CFTC hearing was an exercise in frustration for those of us who believe that the CFTC needs to act to strictly enforce position limits (and to limit exemptions to position limits) on the metals exchanges. From the very beginning, it was evident that the majority of the CFTC commissioners do not intend to impose strict position limits. Participants were limited to only five minutes of testimony. In addition, most of those who testified were not in favor of having strict position limits. The general arguments were that position limits would tend to cause traders to go to markets outside the U.S., and that position limits would result in less "transparency" in the U.S. metals markets.
One participant, Tom LaSala, chief regulatory officer with the CME Group Inc., which operates the CBOT, CME, COMEX, and the NYMEX, even had the audacity to claim that the CFTC lacks legal grounds to set limits because there is "no evidence" of excessive speculation. He stated that the CME Group does have positions limits in its exchanges, although he conceded that "[a]n exemption from exchange set position limits can be granted by the exchange for bona fide hedgers based on physical or swap exposure."
Bill Murphy, of GATA, reminded the CTFC that its own "...reports of November, 2009, show that just two U.S. banks held 43 percent of the commercial net short position in gold and 68 percent of the commercial net short position in silver. In gold, these two banks were short 123,331 contracts but long only 523 contracts, and in silver they were short 41,318 contracts and long only 1,426 contracts. How improbable is it that these two banks attract most of the investors who want only to sell short?" One wonders how anyone could keep a straight face and argue that banks which are more than 99% short on their gold contracts and almost 97% short on their silver contracts might possibly be "bona fide hedgers?!"
Prior to the CFTC hearing, well-known precious metals analyst Gene Arensberg wrote a letter to the CFTC wherein he acknowledged that there are already positions limits in effect on the metals exchanges. However, he pointed out that the problem is that they are not strictly enforced. Instead, exemptions to positions limits are "...given in such huge size that they overwhelm the trading of that market. Yet, that is exactly the condition we find in the gold and silver futures markets from time to time." Mr. Arensberg went on to say that, by continuing to allow a few powerful banks to be exempt from rules regarding position limits, the CFTC has allowed "...one side of the market to become dominant and very highly concentrated." That is the essence of market rigging!
At the CFTC hearings, there was some astounding testimony from Jeffrey Christian, founder of the CPM Group, a precious metals consulting firm. Mr. Christian, formerly of Goldman Sachs, actually admitted that the LBMA trades more than one hundred times the amount of gold that it actually has on hand to back up the trades! In short, most of those who think that they are buying physical gold on the LBMA are actually buying paper. The LBMA is counting on the fact that most of the buyers will not want to take physical delivery of their gold. If and when they do, then cash settlements are offered instead, exactly as reported by newsletter writer Jim Willie several months ago.
Mr. Christian's testimony has serious implications. It means that the LBMA is actually short many times the amount of gold it has on hand. If enough buyers insisted on taking delivery, then the LBMA would clearly be in default. In fact, given that the LBMA has been pressuring buyers to take cash plus 25% rather than physical delivery, it can be said that the LBMA has already been in default on its promises to deliver physical gold to buyers.
I do not expect that the CFTC will take any meaningful action to limit the actions of the large bullion banks which currently have the huge short positions which are depressing the gold and silver prices. However, at the end of the hearing, Commissioner Bart Chilton asked Bill Murphy whether he could provide the CFTC with any evidence supporting his allegations. Mr. Murphy then dropped a bombshell. In an "Additional Statement," he revealed that a London metals trader had approached GATA and provided information about the ways in which JP Morgan Chase has been manipulating the metals markets in London and New York.
I think that the information made public by Bill Murphy is very important. I have contacted him and obtained his permission include his statement in its entirety. Here it is:
Additional Statement by Bill Murphy, Chairman
Gold Anti-Trust Action Committee
to the U.S. Commodity Futures Trading Commission
Washington, D.C., March 25, 2010
On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to [him] how they make money doing so.
In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.
On February 3 Maguire gave two days' warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC's Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.
It would not be possible to predict such a market move unless the market was manipulated.
In an e-mail on February 5 Maguire wrote: "It is common knowledge here in London among the metals traders that it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC's allowing by your own definition an illegal concentrated and manipulative position to continue."
Expiry of the COMEX April call options is tomorrow, March 26. There was large open interest in strikes from $1,100 to $1,150 in gold. As always happens month after month, HSBC and JPM sell short in large quantities to overwhelm all bids and make unsuspecting option holders lose their money. As predicted by GATA, the manipulation started on March 19, when gold was trading at $1,126. Last night it traded at $1,085.
This is how much the gold cartel fears the CFTC's enforcement division. They thumb their noses at you because in more than a decade of complaints and 18 months of a silver market manipulation investigation nothing has been done to stop them. And this is why JPM's cocky and arrogant traders in London are able to brag that they manipulate the market.
This is an outrage and we are making available to the press the e-mails from Maguire wherein he warns of a manipulative event.
Additionally Maguire informed us that he has tape recordings of his telephone communications with the CFTC, which we are taking the appropriate legal steps to acquire.
* * *
From: Andrew Maguire
Sent: Tuesday, January 26, 2010 12:51 PM
To: Ramirez, Eliud [CFTC]
Cc: Chilton, Bart [CFTC]
Subject: Silver today
Dear Mr. Ramirez:
I thought you might be interested in looking into the silver trading today. It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market, can instigate a selloff at will.
These events trade to a regular pattern and we see orchestrated selling occur 100% of the time at options expiry, contract rollover, non-farm payrolls (no matter if the news is bullish or bearish), and in a lesser way at the daily silver fix. I have attached a small presentation to illustrate some of these events. I have included gold, as the same traders to a lesser extent hold a controlling position there too.
Please ignore the last few slides as they were part of a training session I was holding for new traders.
I brought to your attention during our meeting how we traders look for the "signals" they (JPMorgan) send just prior to a big move. I saw the first signals early in Asia in thin volume. As traders we profited from this information but that is not the point as I do not like to operate in a rigged market and what is in reality a crime in progress.
As an example, if you look at the trades just before the pit open today you will see around 1,500 contracts sell all at once where the bids were tiny by comparison in the fives and tens. This has the immediate effect of gaining $2,500 per contract on the short positions against the long holders, who lost that in moments and likely were stopped out. Perhaps look for yourselves into who was behind the trades at that time and note that within that 10-minute period 2,800 contracts hit all the bids to overcome them. This is hardly how a normal trader gets the best price when selling a commodity. Note silver instigated a rapid move lower in both precious metals.
This kind of trading can occur only when a market is being controlled by a single trading entity.
I have a lot of captured data illustrating just about every price takedown since JPMorgan took over the Bear Stearns short silver position.
I am sure you are in a better position to look into the exact details.
It is my wish just to bring more information to your attention to assist you in putting a stop to this criminal activity.
Kind regards,
Andrew Maguire
* * *
From: Ramirez, Eliud [CFTC]
To: Andrew Maguire
Sent: Wednesday, January 27, 2010 4:04 PM
Subject: RE: Silver today
Mr. Maguire,
Thank you for this communication, and for taking the time to furnish the slides.
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]
Sent: Wednesday, February 03, 2010 3:18 PM
Subject: Re: Silver today
Thanks for your response.
Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.
I sent you a slide of a couple of past examples of just how this will play out.
Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.
Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.
Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be "invited" on board, which will further add downward pressure.
The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?
Only if a market is manipulated could this possibly occur.
I would ask you watch the "market depth" live as this event occurs and tag who instigates the move. This would surely help you to pose questions to the parties involved.
This kind of "not-for-profit selling" will end badly and risks the integrity of the COMEX and OTC markets.
I am aware that physical buyers in large size are awaiting this event to scoop up as much "discounted" gold and silver as possible. These are sophisticated entities, mainly foreign, who know how to play the short sellers and turn this paper gold into real delivered physical.
Given that the OTC market (where a lot of the selling occurs) runs on a fractional reserve basis and is not backed up by 1-1 physical gold, this leveraged short selling, where ownership of each ounce of gold has multi claims, poses a very large risk.
I leave this with you, but if you need anything from me that might help you in your investigation I would be pleased to help.
Kind regards,
Andrew T. Maguire
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Sent: Friday, February 05, 2010 2:11 PM
Subject: Fw: Silver today
If you get this in a timely manner, with silver at 15.330 post data, I would suggest you look at who is adding short contracts in the silver contract while gold still rises after NFP data. It is undoubtedly the concentrated short who has "walked silver down" since Wednesday, putting large blocks in the way of bids. This is clear manipulation as the long holders who have been liquidated are matched by new short selling as open interest is rising during the decline.
There should be no reason for this to be occurring other than controlling silver's rise. There is an intent to drive silver through the 15 level stops before buying them back after flushing out the long holders.
Regards,
Andrew
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]; GGensler [CFTC]
Sent: Friday, February 05, 2010 3:37 PM
Subject: Fw: Silver today
A final e-mail to confirm that the silver manipulation was a great success and played out EXACTLY to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview? I have honored my commitment not to publicize our discussions.
I hope you took note of how and who added the short sales (I certainly have a copy) and I am certain you will find it is the same concentrated shorts who have been in full control since JPM took over the Bear Stearns position.
It is common knowledge here in London among the metals traders that it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC's allowing by your own definition an illegal concentrated and manipulative position to continue.
Bart, you made reference to it at the energy meeting. Even if the level is in dispute, what is not disputed is that it exists. Surely some discussions should have taken place between the parties by now. Obviously they feel they can act with impunity.
If I can compile the data, then the CFTC should be able to too.
I would think this is an embarrassment to you as regulators.
Hoping to get your acknowledgement.
Kind regards,
Andrew T. Maguire
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Sent: Friday, February 05, 2010 7:47 PM
Subject: Fw: Silver today
Just logging off here in London. Final note.
Now that gold is undergoing short covering, please look at market depth right now in silver and evidence the large selling blocks in a thin market being put in the way of silver regaining the technical 15 level, which would cause a short covering rally and new longs being instigated. This is resulting in the gold-silver ratio being stretched to ridiculous levels.
I hope this day has given you an example of how silver is "managed" and gives you something more to work with.
If this was long manipulation in, say, the energy market, the shoe would be on the other foot, I suspect.
Have a good weekend.
Andrew
* * *
From: Andrew Maguire
Sent: Tuesday, February 09, 2010 8:24 AM
To: Ramirez, Eliud [CFTC]
Cc: Gensler, Gary; Chilton, Bart [CFTC]
Subject: Fw: Silver today
Dear Mr. Ramirez,
I hadn't received any acknowledgement from you regarding the series of e-mails sent by me last week warning you of the planned market manipulation that would occur in silver and gold a full two days prior to the non-farm payrolls data release.
My objective was to give you something in advance to watch, log, and follow up in your market manipulation investigation.
You will note that the huge footprints left by the two concentrated large shorts were obvious and easily identifiable. You have the data.
The signals I identified ahead of the intended short selling event were clear.
The "live" action I sent you 41 minutes after the trigger event predicting the next imminent move also played out within minutes and exactly as I outlined.
Surely you must at least be somewhat mystified that a market move could be forecast with such accuracy if it was free trading.
All you have to do is identify the large seller and if it is the concentrated short shown in the bank participation report, bring them to task for market manipulation.
I have honored my commitment to assist you and keep any information we discuss private, however if you are going to ignore my information I will deem that commitment to have expired.
All I ask is that you acknowledge receipt of my information. The rest I leave in your good hands.
Respectfully yours,
Andrew T. Maguire
* * *
From: Ramirez, Eliud
To: Andrew Maguire
Sent: Tuesday, February 09, 2010 1:29 PM
Subject: RE: Silver today
Good afternoon, Mr. Maguire,
I have received and reviewed your email communications. Thank you so very much for your observations.
You have probably heard of Harry Markopolos. He is the whistleblower who repeatedly warned the SEC about the fact that Bernie Madoff was running a Ponzi Scheme. The SEC was given the evidence on a silver platter. It did absolutely nothing, and innocent people lost billions. In the process, the SEC revealed itself to be a complete and utter joke. The SEC stood by and did nothing to protect investors.
Andrew Maguire has given the CFTC evidence of criminal conduct. In fact, he specifically WARNED the CFTC before the crime happened! He kept the CFTC informed as the crime was happening. And what was the CFTC's investigator's response? "I have received and reviewed your email communications. Thank you so very much for your observations."
This is the "Madoff Moment" for the CFTC. If they do nothing when handed direct evidence that a market manipulation is in progress, then, like the SEC, they will be utterly discredited. The manipulation of the metals markets is not a "conspiracy theory." It is a fact. Those who do nothing to stop criminal conduct share in the guilt of the criminals.
A Postscript:
On March 25, 2010, Bill Murphy made public the information about the metals market manipulation which London metals trader Andrew Maguire had provided to the CFTC. On March 26, the very next day, Mr. Maguire and his wife were injured when their car was struck by a hit-and-run driver in the London area. According to information obtained by GATA, Maguire's car "...was struck by a car careening out of a side road. When a pedestrian who witnessed the crash tried to block the other driver's escape, the other driver accelerated at the pedestrian, causing him to jump out of the way to avoid being hit. The other driver's car then struck two other cars in escaping. But the other driver was caught by police after a chase in which police helicopters were summoned."
Mr. Maguire and his wife spent the night in a hospital and are expected to make a full recovery. For now, we will assume that the incident was merely an accident.
I did an internet search to see whether or not any of the mainstream "news" organizations had reported on the market rigging information which Andrew Maguire provided to the CFTC. CNBC? Fox Business? Bloomberg? Not one of them did.
(This article contains a small portion of a recent issue of The Richter Report. There's a lot more for paid subscribers. Please feel free to visit the website and look around!)
By Jim Richter
© 2010 Copyright Jim Richter - 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.
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
