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Are Commodities Markets Rigged?
Business Spectator (Australia) ^ | 29 October 2010 | Robert Gottliebsen

Posted on 03/29/2010 9:18:32 PM PDT by JustTheTruth

Trading in the financial markets is an enormous source of profits for the world’s largest investment banks and the traders get big chunks of each firm's controversial bonuses each year. The fortunes of Australia are closely linked to this trading activity as the Australian dollar exchange rate and metals such as gold and silver are among the most traded areas – and the traders have a big role in establishing the prices.

Over the past few decades, there have been allegations of market rigging in these areas and from time to time incidents are proved. But clear cases of market rigging have not been widespread, either because they simply don’t exist or because proof is too hard to obtain.

However, a unique event has taken place in the silver market. A London metals trader, Andrew Maguire, emailed the US Commodity Futures Trading Commission (CFTC) warning them that market rigging in the silver market was about to take place. He described how JP Morgan Chase allegedly sends signals to the market of its intention to take down the price of precious metals. Other traders recognise these signals and make money shorting the metals alongside JP Morgan. These manipulations allegedly take place at the time of option expiry, non-farm payroll data releases, and COMEX contract roll-over, as well as adhoc events. The CFTC was told that a market rigging event would take place in the first week of February coinciding with the release of non-farm payroll data. Maguire described what would happen and then, during the actual alleged market rigging event, he interpreted what was happening.

I want to emphasise that I am not endorsing those allegations and it is almost certain that JP Morgan Chase will be able explain its actions and show that they had nothing to do with market manipulation.

And to underline their case, the emails were released by a group known as the Gold Anti-Trust Action Committee, which has a clear axe to grind.

What makes this warning worth commenting on is that last Thursday the Commodity Futures Trading Commission held a public meeting to examine the trading of futures and options in the precious and base metals markets. The inquiry covers a wide range of issues related to metals trading and derivatives.

If – and I emphasise if – there is any validity to the Maguire allegations, then it will spark a much wider inquiry going well beyond silver. Apart from suspected exchange rate manipulation, Michael Lewis in his book 'The Big Short', tells the story of the person who first discovered and made a fortune from the sub-prime disaster. The book indicates that as the disaster was unfolding there were investment bank activities that looked suspiciously like market rigging.

And the whole question of investment bank bonuses is a most controversial area.

The world of derivatives trading is one that few understand, but if the events around the London silver market in February 2010 do turn out to be a case of market rigging, there could be a whole new raft of regulations. Watch this space.

The 'silver affair' comes as there are jitters among London investment banks because, according to The Australian, officers from the Serious Organised Crime Agency have conducted 16 dawn raids on investment bank traders, looking at pre-takeover activities.

These raids are in no way connected to the 'silver affair' but underline that investment bank trading is under unprecedented scrutiny.


TOPICS: Crime/Corruption; Government; News/Current Events
KEYWORDS: banking; crime; gold; manipulation; silver
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Are commodities markets rigged? What financial markets, anywhere in the world, are NOT rigged?

The author, like most others, is seemingly afraid to call it like it is... and gives incredible deference to an undeserving JP Morgan. But, that is how it must be played: pretend, pretend, pretend to avoid retaliation.

It has all become "an insider's game." Balance sheets of financial institutions and of soverign nations are all nearly all so fake as to make Enron's books look squeaky clean.

It is all "extend and pretend," as the Central Bankers and the large international banks that control them keep the music going and as the huge international Ponzi scheme rolls on.

1 posted on 03/29/2010 9:18:32 PM PDT by JustTheTruth
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To: JustTheTruth

Oops! Typo! “soverign” = “sovereign”


2 posted on 03/29/2010 9:24:59 PM PDT by JustTheTruth (States Rights: One Way to Help Save Our Freedom.)
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To: JustTheTruth

Well, there are some renegade globalist groups of shorters, but it looks like they’re losing. They’ve actually kept some commodities prices down a little, so the future looks generally bright for those who do enough study before getting in.

[I’m not a qualified investment advisor, and commodities can be risky. So do quite a bit of research, and get some good advise from professionals before buying commodities.]


3 posted on 03/29/2010 9:28:21 PM PDT by familyop (cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote.)
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To: JustTheTruth

It’s the derivatives game that these disgusting bankers play.


4 posted on 03/29/2010 9:29:54 PM PDT by rbosque (11 year Freeper! Combat Economist.)
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To: JustTheTruth

Every market in the world is rigged and always has been to a great degree. That is the nature of speculation. Without it there would be no markets.


5 posted on 03/29/2010 9:49:49 PM PDT by Free Vulcan (No prisoners, no mercy. 2010 is here...)
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To: blam; mainevet

Ping.


6 posted on 03/29/2010 9:51:48 PM PDT by Jet Jaguar (*)
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To: JustTheTruth
One word.

Soros.

.

7 posted on 03/29/2010 10:05:45 PM PDT by Seaplaner (Never give in. Never give in. Never...except to convictions of honour and good sense. W. Churchill)
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To: JustTheTruth
As this article notes, these enquiries have been triggered because of whistle-blower Andrew Maguire.

And look what happened next. He is the victim of a hit and run car accident. From a news report:

A London-based precious-metals trader who had accused JPMorgan Chase of manipulating the gold and silver markets was involved in a bizarre weekend car accident that triggered a police chase before the suspect was nabbed.

Andrew Maguire, a metals trader at the London Bullion Market Association, and his wife were traveling in their car when a second car coming out of a side street struck their vehicle. That car then hit two more vehicles before fleeing.

London cops using helicopters and patrol cars chased the hit-and-run driver before nabbing that person, whose name has not been released by authorities. Read more:

http://www.nypost.com/p/news/business/jpmorgan_chase_story_in_uk_DsMN4PnXFoQG5KdevIsQ7N#ixzz0jdRcmJY0

8 posted on 03/29/2010 10:36:27 PM PDT by BlackVeil
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To: JustTheTruth; Attention Surplus Disorder; Toddsterpatriot; Smokin' Joe; thackney; Southack
Armstrong (Princeton Econometrics, now in jail or perhaps out on probation) described the silver mkt 12 yrs ago as completely rigged; the big players in the 'ring' on LME ran stops on both ends regularly.

To generalise about commodities mkts as 'rigged', though, is simply idiotic at this time. BECAUSE no one knows the depths of idiocy that the current US regime intends to plumb, no one -- NO ONE -- can say that other futures mkts are rigged, with the obvious exception of US debt futures. They're staying bid, to some extent, for awhile. A year from now, I think it INarguable that US debt futurs, particularly the long end (that's 30-year bonds and 10-year notes for all our non-trader FRiends here) will be 5, 8, 10, 14 or so handles LOWER (1 handle equals 1 'point', that is, from 115-00 to 114-00 on these instruments is one handle).

Given the current regime, does ANYONE suppose that US debt auctions will be as well bid during the next year as they have traditionally been? If you believe so, I'd (in a very friendly way, of course) suggest you consult your physician about upping your dosage of anti-psychotic meds.

9 posted on 03/29/2010 11:48:01 PM PDT by SAJ (Zerobama? A phony and a prick, ergo a dildo.)
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To: SAJ

I’ll take the debt bet...U.S. interest rates will fall to align with Japanese debt rates eventually.

As for rigging commodities, we’ve got widespread deflation from global overproduction and over-capacity. That points to a good short opportunity.

We’ve got 77 million Baby Boomers hitting retirement age and changing from consumers to liquidators. That points to a good short opportunity.

We’ve got massive destruction of private credit availability. That points to a good short opportunity.

We’ve got an over-supply of homes (19 million are vacant) and horrendous commercial property vacancy rates (~~ 20% and climbing). That points to a good short opportunity.

People needs cash to make their mortgage payments. They’re mailing in gold and silver to get that cash. They’re going to pawn shops to get that cash, too...because unemployment is above 10% and climbing so they can’t very well get cash from their jobs.

Overall home prices, natural gas prices, strawberry prices, and wages are falling. The Nikkei is down to 11,000 from a high of 40,000. The DOW is down to 11,000 from a high of 14,000.

It all points to a good short opportunity.


10 posted on 03/30/2010 12:06:09 AM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: SAJ

Wrt silver in particular; I’m a long term silver bug, so of course I am conversant with the various writings of Ted Butler and Dave Morgan and GATA, all of whom have complained bitterly to the CFTC for many, many years over their beliefs that the silver market was rigged.

While I respect their arguments and marvel at the number of times they have made them, I remain unconvinced either way.
Some of their arguments have seemed ridiculous to me from day one and they remain so. For example: They all claim silver is rarer than gold; considering that silver tends to be consumed while gold does not. Absurd, IMO. Not only are the amounts produced per year massively higher for silver vs gold, high silver prices cause literally kilotons of silver to “come out of hiding”. Which crushes, or at least places a ceiling on prices.

The variety of players in the metals commod markets is indeed vast. Short term speculators; long term speculators; bullion banks; electronics consumers (at a manufacturing level); miners selling forward production; car part companies who make catalytic converters; bond investors who need to hedge the value of their loans to miners; the PM ETFs; ..and probably a few others. The cry of the “alarmists”....those who claim that the volume of contracts traded on the COMEX or LME is far in excess of the amount(s) of these metals in existence...I don’t find particularly alarming. Maybe I should. Knowing the variety of players in the space....I’d be surprised if it wasn’t so. I’d also be surprised if more than 3% of the existing contracts at any time are actually delivered vs liquidated, offset, or rolled over.

It doesn’t take much figuring to realize that if BHP Billiton, Freeport, Newmont, Goldcorp, Barrick, Agnico-Eagle, and eight dozen other miners decide as a matter of corporate policy to sell forward say 20-30% of their 3-year forward production and constantly renew same as it rolls over, you are going to have absolutely gargantuan, essentially permanent short interest in the market. And that is exactly what you find.

As to the future of US debt, I sure don’t know. Logic isn’t running markets these days. I’ve backed way, way off trying to read the tea leaves.


11 posted on 03/30/2010 12:17:18 AM PDT by Attention Surplus Disorder (Voters who thought their ship came in with 0bama are on their own Titanic.)
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To: Southack

“It all points to a good short opportunity.”

Yup. And it will unquestionably happen one day. I’d of course point out that the corpses of shorts are lying around at alarming depth in recent market history.

I would also point out that on the other side of every piece of market logic you or I have ever studied is a government who has to maintain an elevated market to sell (as just one example) thier big Citi holding into, and to remain attractive to insta-reverse int’l cap flows.


12 posted on 03/30/2010 12:40:40 AM PDT by Attention Surplus Disorder (Voters who thought their ship came in with 0bama are on their own Titanic.)
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To: Attention Surplus Disorder

As long as central banks can enter markets through cutouts...oh oh I think I saw a vehicle heading straight at me.... ;-)


13 posted on 03/30/2010 2:05:43 AM PDT by cgbg (Lying is what they _do_.)
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To: Attention Surplus Disorder

How bout the fact that four bullion banks led by JP Morgan hold the vast majority of gold and silver shorts? Think that might mean something? How bout the fact that right before options expiration, almost every month the price of silver/gold is driven down below the most popular strike price? Or how bout how the metals get killed when the non-farm payroll numbers get released every month, whether the number is good or bad? These markets have been rigged for many years going back to the London Gold Pool. Why would this happen? Having the prices of metals escalate beyond the 17 percent per annum return of the last decade would have a very deleterious affect on the currency markets. Since all currencies will eventually become worth zero, this could have the effect of speeding up this process.

And now a trader, who worked for Goldman, comes forward and predicts the exact movement of the market almost to minute and you don’t believe it? What will it take, Benjamin Bernanke in a tape recorded conversation with Jamie Dimon conspiring to fix the market.

And then the next day Maguire happens to be involved in a hit and run accident where the hitter tries to run down a pedestrian who tries to stop him and is later apprehended by the police using helicopters. Oh my what a coincidence.

The fact is that rigging takes place in all markets at one time or another. Especially now that the banks’ power is so concentrated and they are borrowing funds for free from the Fed and plowing them into the markets. Virtually all of their profits are coming from trading. Trading what?


14 posted on 03/30/2010 4:07:08 AM PDT by appeal2 (Don't steal, the government hates competition.)
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To: JustTheTruth

Many of the conservative talk radio hosts are pushing for listeners to buy gold, but isn’t it a little late to do so?


15 posted on 03/30/2010 7:17:49 AM PDT by KeyLargo
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To: KeyLargo
Many of the conservative talk radio hosts are pushing for listeners to buy gold,

Many of the conservative talk radio hosts are are paid to push listeners to buy gold,

16 posted on 03/30/2010 7:19:19 AM PDT by ColdWater ("The theory of evolution really has no bearing on what I'm trying to accomplish with FR anyway. ")
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To: appeal2

“How bout the fact that four bullion banks led by JP Morgan hold the vast majority of gold and silver shorts? Think that might mean something?”

No question about it, except...what *is* that something? Straight ahead question. Not counting 1965, when I had convinced all the nurse-type gals who worked the cash registers in my junior high lunchroom to segregate out all the silver coins they found and sell them to me at face....I started watching gold/silver circa 1999-2000. Back then, interest rates were in the 5-6-7% range, but bullion banks would lend gold at roughly 1% and gold had done almost nothing for 20 years. So, if I were JPM with essentially unlimited funds, yes, I would consider it a viable trading strategy to borrow gold, sell it, take the proceeds and invest them at 8-10-15%, then try to repurchase the gold I was obligated to pay back on dips; which would probably crank my returns to the 20-30% range. You bet I would.

And from that same era, if I were JPM and held most of the shares of Barrick and probably a load of debt from same, yeah, I would hedge at least some of those shares against a
serious decline in the POG or a mining disaster at Barrick .....again, gold having done pretty much nothing for 20 years. You know, I take it, that at various times in the 2003-5 era when gold starting cranking in earnest, JPM was billions and billions underwater on their ABX hedges. In essence, JP had agreed to sell tons of gold at what was then a couple hundred bucks under market. At one time, this exposure actually threatened JPs’ solvency.

“How bout the fact that right before options expiration, almost every month the price of silver/gold is driven down below the most popular strike price?”

That’s a notch more plausible indication of mkt manipulation, in my book. But when the market is indeed dominated by shorts, particularly shorts who are blazingly better capitalized than longs, statistically, one is probably better off selling puts than buying calls. Implying options expirys below maxpain points.

“Or how bout how the metals get killed when the non-farm payroll numbers get released every month, whether the number is good or bad?”

I’m not aware of that phenom. Not saying it exists or doesn’t exist, it just hasn’t entered my awareness.

I’m not saying the markets are manipulated or not. Frankly, my opinion leans towards them being manipulated. I also believe that especially in recent history, “there are no cops”: There is essentially no enforcement of securities or exchange laws whatsoever, and yes, it’s certainly intuitive that in such an environment, manipulation and corruption is bound to flourish.

So in essence, I agree more than disagree with you. It’s just that I’ve heard the stories and accusations for so damn long that I’m numb to them.


17 posted on 03/30/2010 8:23:47 AM PDT by Attention Surplus Disorder (Voters who thought their ship came in with 0bama are on their own Titanic.)
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To: KeyLargo

No. No way. I wrote recently that random places — places that sell cowboy hats and belt buckles, for example — in the Mexican part of San Jose are buying gold. They are NOT selling it.

We can’t even begin to talk about being “too late” until we see places like that buying it, selling it, having it on display, being robbed at gunpoint, etc.


18 posted on 03/30/2010 8:23:52 AM PDT by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: KeyLargo

Plus, all the big dealers selling bullion coins (not rare coins) you see on TV make their money on the bid/ask spread. They don’t try to buy low and sell high. That’s been the business plan, and known to be the business plan, forever.


19 posted on 03/30/2010 8:26:15 AM PDT by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: Attention Surplus Disorder

Its usually the people who lose money because their view of the market was incorrect that cry fix. However, these movements are too predictable and to routine to believe otherwise. If a lay person like me can watch this happen and pick out patterns with no computer aids, just a calendar and a calculator then it must really be bad. The fact is that the majors, JP, HSBC, etc are underwater on a lot of contracts. I think their actions have become so transparent as to require them to head for the exits shortly.

No doubt in my mind that they have been doing this at the behest of the Fed. These seemingly loser trades that one often sees can leave no other explanation.

The physical market as opposed to the paper market are become ever more disconnected from one another. Just a matter of time till the paper market ceases to set the price.

In addition, if you think fractional reserve banking is bad, the metal exchanges are even worse. Each ounce of gold and silver they have has over 170 claims upon it. Effectively there is no reserve requirement. It is a house of cards just waiting to collapse.


20 posted on 03/30/2010 10:16:12 AM PDT by appeal2 (Don't steal, the government hates competition.)
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