Are Big Banks Using Derivatives To Suppress Bullion Prices?

For a long time now it is apparent that the price of gold is being manipulated by the Federal Reserve’s agents the bullion banks (principally JPMorgan Chase, HSBC and ScotiaBank) that sell uncovered shorts (naked shorts) on the Comex (the gold and futures market) in order to drive down and otherwise rising price of gold. To those unfamiliar with these terms it is using financial derivatives (contracts in the futures market) as a means to manipulate price. Derivative contracts are paper contracts with a future expiry date, not gold contracts where physical gold changes hands.

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 derivatives contracts, instead settling in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold that the contract implies is present. 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 means that the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people (banks) 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.

Many times examples pop up, one being back in July 2015 when the US Mint announced that it was sold out of the American Eagle one ounce silver coin. This was a contradiction of the law of supply and demand that demand was so high (sold out just a few days after taking delivery of new stocks) but the price was falling. Such an economic contradiction can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts. It’s obvious fraud and price manipulation are at work, but no heads roll and no one is charged with an illegal activity. Therefore it must be that 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.

During 2015 the attack on bullion prices intensified, driving the prices lower than they have been for years. During the first quarter of 2015 there was a huge upward spike in the quantity of precious metal derivatives. 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.

Political uncertainties historically are linked with rising not falling bullion prices . Right now there has never been such an unstable geopolitical outlook. From a bankrupt Greece to wars throughout the middle east to a refugee crisis that threatens to undermine the fabric of European society. The normal response would be rising, not falling, bullion prices. However, it appears that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.

Move onto early February 2016 and Zero Hedge reports that in the early hours of February 5th another attack on the gold price occurred when $1.2 billion of gold contracts were dumped into the futures market dropping the price by $20.00. Only this time the success of the trade was very short lived as shown in the graph. The Kitco graph also shows this action but unlike other attacks the price of gold has continued the upward trend. What this suggests is that despite this attack that investors may no longer be buying into the idea that gold is simply a commodity. Is it possible that clueless central banks having printed trillions of dollars, euros and even more Japanese yen are now exposed as having no idea other than make you pay to keep cash stored in the bank? Of course this is in the vain hope that you may be incentivised to go out and spend it to generate economic growth by buying more stuff you don’t want in your retirement years.

Maybe trust in the fiat money system is coming under threat?

This article was compiled based around an original article of Paul Craig Roberts and Dave Kranzler first put together (and posted on Paul Craig Roberts website) but updated and added to by Kiwiwatch.

Malcolm Eves

06/02/2016