Sunday, March 28, 2010

Wall Street Fixes Gold Prices

Wall Street Fixes Gold Prices

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A leading precious metals watchdog group says it has compelling proof the prices of gold and silver have been manipulated for years by Wall Street firms, and it is demanding government regulators take action.

The Gold Anti-Trust Action Committee (GATA) was formed in January 1999 to expose and oppose the manipulation and suppression of the price of gold. Its frustrated efforts to expose manipulation in the gold market parallel Harry Markopolos’s seven-year quest to expose the Madoff ponzi scheme to the Securities and Exchange Commission.

What it has learned over the past 11 years is of great importance to the Commodity Futures Trading Commission’s (CFTC) forthcoming hearings regarding position limits in the precious metals futures market.

GATA’s chairman, William Murphy III, says, “GATA has evidence there are enormous physical short positions in the gold and silver markets that cannot be covered.”

In a letter to CFTC Chairman Gary Gensler, a former partner at Goldman Sachs who once supported market deregulation now blamed for the recent financial meltdown, Murphy charged that GATA has collected reams of evidence “that Western central bank gold has long been mobilized and surreptitiously dishoarded to rig the gold market and influence related markets, and that this rigging has drawn upon the U.S. gold reserves.”

He urged the CFTC to report on these markets and take appropriate action.

The CFTC is meeting as this newspaper goes to press on March 25 to establish position limits in the gold, silver and other precious metals markets. However, it could be none other than the CFTC’s core banks and Gensler’s former Goldman bosses that form the very core of the biggest market manipulation collusion syndicate in the history of the commodity markets.

Murphy wrote to Gensler on March 8: “Because of the decades-long interference with the gold market, we estimate the free-market price of gold is multiples of the current price. Growing stress caused by burgeoning physical bullion demand is threatening to lead to a price explosion, which will restore to the market the balance that regulation has failed to maintain. In our view, the Comex [New York Commodities Exchange] paper market will become dysfunctional, with ‘force majeure’ having to be declared as the concentrated shorts are unable to deliver on their obligations.”

If GATA indeed has the evidence of massive physical positions impossible to cover, and should this evidence be made public, the repercussions for the price of gold and silver will be unprecedented.

Dedicated AFP readers will remember it was GATA that two years ago spent $265,000 for a full-page, onetime advertisement in The Wall Street Journal asking in broad headlines: “Anybody Seen Our Gold?” GATA’s ad warned, “This manipulation has been a primary cause of the catastrophic excesses in the markets that . . . threaten the . . . world.”

What GATA had warned against has come to pass, and its investigation has not ceased.

In pursuit of Obama’s “transparency in the federal government,” GATA has made Freedom of Information Act requests to the Federal Reserve and Treasury Department for a candid accounting of their involvement in the gold market, particularly in regard to gold swaps.

In a reply to GATA’s lawyers dated Sept. 17, 2009, Fed Governor Kevin M. Warsh acknowledged that the Federal Reserve has gold swap agreements with foreign banks but insisted that such documents remain secret. As a result, last December, GATA sued the Federal Reserve in the U.S. District Court for the District of Columbia, seeking access to the Fed’s withheld records of gold swaps.

In his lengthy letter, Murphy told Gensler, “Initially we thought the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JPMorgan, Chase Bank and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and the Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals and bond markets.”

GATA has long implicated the Comex as being a mechanism by which gold and silver price suppression is implemented, and the smoking gun is the excessive concentration of bullion bank positions in the gold and silver futures markets that enables market manipulation.

The CFTC’s 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 and long only 1,426.

Murphy asks, “How improbable is it that these two banks attract most of the investors who want only to sell short?” He went on to point out that GATA knew that the two banks that hold these large manipulative short positions, JPMorgan Chase and HSBC, held more than 95 percent of the gold and precious metals derivatives of all U.S. banks, with a combined notional value of $120 billion.

This concentration dwarfs the concentration in the gold and silver futures markets and should raise great concern about the lack of position limits on the Comex. Giving CFTC one more hurdle before closing, Murphy wrote, “It is also disturbing to us that HSBC is the custodian for the major gold exchange-traded fund, GLD, and that JPMorgan Chase is the custodian for the major silver exchange-traded fund, SLV. It is a significant material omission to fail to disclose to GLD and SLV investors that the custodian banks of the two exchange-traded funds have an interest in falling prices in the futures and derivatives markets.”

He pointed out that detailed daily monitoring of gold trading reveals the pattern that the gold price consistently falls in the darkness of early dawn New York time when the gold cartel’s traders report to work in London, and again following the evening gold price fix, when physical market pricing has concluded for the day, and in the access market following the Comex close.

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