- Plea bargain in New York: Fall guy for gold manipulation scheme
- Gold manipulation: Once fringe, now (nearly) mainstream
- An ex-regulator’s deathbed confession about one of the big banks
- Longtime metals expert comes around to manipulation thesis
- Post-Fed letdown: Yield curve inverts (again) after latest signals
- Reader says we’ve “lost it” with our take on the Hong Kong protests.
Picking up where our conspiracy-theory episode of The 5 left off last week… it is no longer tinfoil to speak up about “gold manipulation.”
Two days ago, a precious metals trader with JPMorgan Chase pleaded guilty to federal charges. “Christiaan Trunz admitted during a hearing in federal court in Brooklyn that he placed and then canceled thousands of orders for futures contracts for gold, silver, platinum and palladium while he worked at Bear Stearns and JPMorgan from 2007–2016,” reports Bloomberg.
He faces more than 11 years of prison time, but in all likelihood he’ll just be fined and ordered not to trade precious metals again.
Trunz is the third trader who copped a plea on metals manipulation in the last year.
But those three are just the fall guys for a much bigger scheme that’s only now being talked about in polite company.
We should back up a bit: Your editor’s view on “gold manipulation” has evolved over the nine years I’ve been managing editor of this daily missive.
For a long time I was in the camp of newsletter legend Doug Casey — that there was nothing to it. Also in this camp is Marc Faber of Gloom, Boom & Doom Report fame. I took a quotation of his and turned it into a meme…
That’s still true, by the way. Even with gold up 25% in the last year and hovering around $1,500, there’s still ample headroom. Reasonable people are talking $2,000 and not getting laughed out of the room.
It was our own Jim Rickards who opened my eyes to how the powers that be manipulate the gold price.
The short version: Central banks lease gold bars to commercial banks… which then proceed to sell the bars to buyers in Asia. The bars, meanwhile, never leave the vault. (Too costly and complicated to transport.)
The slightly longer version: Chinese leaders have been relentlessly accumulating gold for years, aiming to approach or equal the amount held by the U.S. Treasury and the central banks of Europe. That’s the only way China can be assured a “seat at the table” whenever the global monetary system collapses and the powers that be hash out a new system.
The powers that be have been enabling China’s accumulation via the leasing scheme described two paragraphs ago. Those Asian buyers have included the People’s Bank of China.
“The gold price must be kept low,” Jim wrote in his book The Death of Money, “until gold holdings are rebalanced among the major economic powers, and the rebalancing must be completed before the collapse of the international monetary system.”
His research and documentation are peerless. “Get the annual report from the Bank for International Settlements,” he told me over dinner one evening. “Read the footnotes. I understand it’s geeky, but it’s there. They actually get audited — unlike the Fed and unlike Fort Knox.”
That was back in 2014. Here in 2019, “gold manipulation” is quickly becoming mainstream wisdom.
For one thing, there’s the deathbed confession of Bart Chilton.
Chilton was appointed to the Commodity Futures Trading Commission by President Bush in 2007 and kept on by President Obama. In 2014, he left government to join the uber-connected global law firm of DLA Piper.
He was colorful and charismatic, with trademark cowboy boots and shoulder-length hair that were out of place in D.C. Fond of the limelight, he joined Russia’s state-run English-language news channel RT last year as host of the daily business news roundup Boom Bust.
The telegenic Bart Chilton, in his element
His last appearance on TV was at the end of March. By the end of April, he was dead. Pancreatic cancer, the obits said. He was 58.
Perhaps knowing his time was almost up, Chilton granted a candid interview a few weeks before shuffling off this mortal coil.
His questioner was an ex-Wall Streeter named Chris Marcus, who now runs an advisory firm called Arcadia Economics.
In so many words, Chilton confirmed that at one time JPMorgan Chase controlled about 40% of the global silver market. It was after JPM took over the collapsing Bear Stearns in 2008. The two firms’ combined position was way over limits set by the Commodity Futures Trading Commission. The CFTC granted waivers and extensions to JPM, during which time JPM actually acquired more silver.
“They did ultimately get down to the position [limit],” he recalled. “But it was at that time that they were so large, that I made the comment about how large a particular bank was in the market. Which sort of shocked people. And it shocked me, quite frankly, that it was so large.”
Upon further investigation, “we did uncover a lot of evidence that would lead to a manipulation case, or an attempted manipulation case,” Chilton went on.
We’re talking voicemails, text messages and a trail of trades. Chilton and crew recruited a forensic economist to dig deeper. Four years this went on. At Chilton’s behest the CFTC kept it going for a fifth year, commissioning another forensic economist.
In the end, the evidence was compelling, but not enough to nail anyone to the wall.
“We just didn’t have the traders, and we didn’t have the market participants dead to rights. But we had lots of stuff. And we had real stuff that would have played really well in court… But the damning part had to be backed up by other requirements of evidence under the law. And we didn’t get all of that.”
Presumably Chilton was talking about a case big enough to take down the people in JPM’s C-suite — and not the grunt traders like the fellow who pleaded out this week.
As of March 31, 2019, JPM still controls 45% of all derivatives contracts — futures, options and whatnot — linked to precious metals. And Citi controls another 30%.
Meanwhile, there’s a top name in the precious metals space who’s come around this year to the manipulation thesis.
He’s Frank Holmes, longtime friend of The 5 and manager of the U.S. Global family of mutual funds, specializing in precious metals and natural resources.
“Gold price suppression (‘fixing,’ ‘rigging,’ ‘manipulating’ or however else you want to think about it) is not just a conspiracy theory,” Frank wrote his investors in May. “It’s a well-documented phenomenon, with real actors and real ramifications.
“The best people to speak to about this subject are the folks at the Gold Anti-Trust Action Committee, or GATA.”
For well over a decade, most investment pros dismissed the GATA crowd as cranks of the first order. For Frank to take their arguments and documentation seriously? That’s a sea change.
For evidence of rigging, Frank directs our attention to a tumble in the gold price less than a year ago.
Gold rallied from November through February, peaking at $1,343. “Ordinarily,” he says, “you could expect inventory in the bullion-backed SPDR Gold Shares ETF (GLD) to continue to climb at least until then. But that’s not at all what happened.
“Three weeks before the price of gold peaked, the holdings in the GLD curiously began to fall, and by March 4, the ETF had lost approximately 57.8 metric tonnes. And because the GLD is the largest gold ETF in the world… such selling will naturally impact the price of gold. Sure enough, the yellow metal soon fell below $1,300. What gives?”
Back to the Bank for International Settlements, mentioned above. In its monthly statement for February, “the BIS was still actively trading gold swaps, which it uses to gain access to the metal held by commercial banks. Specifically, the bank placed as much as 56 metric tonnes of gold swaps into the market in February.
“If you ask me, that amount is remarkably close to the 57.8 tonnes that fled the GLD in the first quarter of this year.”
We got pretty deep in the weeds there. But it all comes back to Marc Faber’s remark up top: “If you have manipulation to keep the price down, it eventually goes ballistic.”
That is, the tricks work only for so long. And people who pay much closer attention to this situation than I believe JPMorgan Chase is biding its time with its still-enormous silver position — waiting for just the right moment to relieve the massive pressure that’s building up. It’s not inconceivable that silver could leap from its current $17 an ounce… all the way to its 1980 and 2011 peaks at $50.
Naturally, that would also be bullish for silver’s “big brother,” gold.
Usually the financial media are down on gold. But not now. “Man Who Called Gold’s Recent Rally Says the Precious Metal Is Going Even Higher,” trumpets CNBC. “Get Ready for a Weaker U.S. Dollar… and Stronger Gold,” says Forbes.
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We have just enough time to check the markets and dip into the mailbag before our 5 Mins. are up.
The yield curve briefly inverted again this morning — the third time in a week the yield on a 2-year Treasury note topped the 10-year. Emily points out CNBC’s utterly unironic headline: “Yield Curve Inverts Once Again on Fears the Fed Won’t Save the Economy From Recession.”
Yesterday the Federal Reserve released the minutes from its July meeting where it cut the fed funds rate for the first time since 2008. The carefully crafted document reinforced Fed chairman Jerome Powell’s line about the cut being a “midcycle adjustment” and not the first in a series of cuts.
Traders in fed funds futures aren’t buying it. They’re still pricing in a 91% probability of another rate cut next month. But there’s also a 9% probability the Fed will stand pat, and that’s a change from a few days ago.
In the meantime, the major U.S. stock indexes are treading water. At 2,920 the S&P 500 remains about 100 points below its record close last month. No this isn’t a repeat from any other episode of The 5 this week. Gold remains a hair below $1,500.
“You guys have lost it!” a reader writes after yesterday’s edition.
“A ridiculous ‘cynical plan’ by the U.S. government against Hong Kong protesters to thwart the Chinese government, based on the opinion and word of some obscure ‘Pepe Escobar’?? Really??
“Wow. Thought you would wade neck deep into your own conspiracy theory? I really thought you people knew better. You actually make fun of people who cook up these theories based on hope, wind and sand. Jeez.”
The 5: We said up top, “What if”? more than once.
Now and then we just like to connect some dots no one else is. Especially on a massive topic like China’s rise as an economic power and how people in Washington might want to thwart it. Escobar knows a thing or two; we’ve cited him in the past.
By the way, he thinks Beijing won’t rise to Washington’s bait. He believes Hong Kong isn’t very important to Chinese leaders anymore. Its role as a financial hub is being supplanted by Shanghai and its role as a high-tech hub is being supplanted by Shenzhen.
“In the end,” he writes, “Hong Kong will be left to its own internally corroding devices – slowly degrading to its final tawdry status as a Chinese Disneyland with a Western veneer.”
For the sake of the protesters and of world peace, let’s hope so…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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