Sunday, April 8, 2012

Two Simple Questions for Lawmakers

During the third quarter of 2011, in the midst of the European banking crisis, with the Swiss Franc soaring to new safe haven heights, the Swiss National Bank felt increasing pressure to ease the burden of too strong a currency on the economy. Following ineffective actions in August, the SNB finally bit the bullet on September 6th, spending a reported 40-50 billion Euro to significantly devalue the Franc, which was otherwise becoming a much sought after alternative to the faltering Euro. Jeremy Cook, Chief Economist at currency brokers World First described the action on that calamatous day, in The Guardian, as:

the single largest foreign exchange move I have ever seen … The Swiss franc has lost close on 9% in the past 15 minutes. This dwarfs moves seen post-Lehman brothers, 7/7, and other major geo-political events in the past decade

Intuitively, the largest currency devaluation witnessed by any chief economist should be wildly bullish for gold, since gold is even more than the Swiss franc, historically recognized as one of THE safe haven financial instruments. Strangely, in this case no. A cool five minutes before the SNB intervention, the gold price mysteriously plunged $50. This particular event begs the question of just who has undertaken obviously, such a successful joint gold and foreign exchange intervention? 

Rewind to Basel Switzerland, where in his 28th June, 2005, opening remarks to the Bank for International Settlements, BIS Fourth Annual Conference; Past and Future of Central Bank Cooperation, Economic Adviser and Head of the Monetary and Economic Department, William R. White listed the intermediate objectives of central bank cooperation as including the following:

the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful.

Then in 2008, in an introductory presentation by Jean-Fran├žois Rigaudy, BIS Head of Treasury at a Basel Switzerland, a slide on page 17. indicating the range of BIS products available for members says:

Gold & Forex Services - Intervention

A copy of the slide from the presentation can be found here: The complete presentation can be found here:

As for the nuts and bolts of such an operation, the Swiss National Bank could be selling gold in the markets themselves, through the BIS as above or as The Wall St Journal reported on February 7th, this year, by another method adopted by the Bank of Japan to facilitate secret currency interventions: 

On Oct. 31, the BOJ -- acting at the behest of the Ministry of Finance, which sets currency policy -- entered markets to sell yen after it surged to a record high against the dollar. But analysts were caught off guard by MOF's admission that between Nov. 1 and Nov. 4, it conducted an additional $13.3 billion worth of "stealth intervention" by using a limited number of commercial banks sworn to secrecy

A recent article by Paul Mylchreest titled:  Thunder Road Report - 28 March 2012, details astonishing patterns of gold trading, including on page 32. graphic representation of the dual actions of last September 6th, in what an increasing number of investors fear as manipulated precious metals markets:

Euro/CHF 5 Minute Chart - Sept. 6th

Gold 24 Hour Chart - Sept. 6th

By themselves, the BIS discussions and Wall St Journal article are surprising, however read together with the charts from September 6th, 2011, one may conclude it is probable that as GATA have been claiming for years, and as Barrick once asked a court to consider in their defense, that central banks are intervening in the gold markets and, possibly using the services of commercial banks to undertake interventions in precious metals markets on their behalf.

On 27th February last, I wrote to the BIS asking about the purpose, nature, and frequency of gold market interventions as touted in their documentation. Rather than answering the question, they replied on the 29th, February, providing a link to their latest annual report which contains no information about gold interventions. I therefore refer the issue to you, the reader, with the following two simple questions:
  1. Is it lawful, as they advertise, for the Bank for International Settlements to undertake joint efforts to influence gold asset prices through intervention in the gold market? and
  2. Is it acceptable, as they advertise, for the Bank for International Settlements to undertake joint efforts to influence gold asset prices by intervention in the gold market, where citizens and institutions otherwise are led to believe they are investing in free and fair markets?

Saturday, March 3, 2012

CFTC inaction jeopardizes position limit enactment

Ironically, the inability of the CFTC to bring a conclusion or prosecution in a three and a half year long investigation into silver market manipulation allegations, may be putting at risk Dodd-Frank legislation designed to prevent the very same manipulation.

According to a Bloomberg reportJudge Robert Wilkins, who will announce 'quickly' on whether banks such as Barclays Plc and JPMorgan Chase & Co are allowed to put the new CFTC position limit rule on hold, has publicly stated he is "skeptical" about the authority of the US Congress to mandate position limits.

The story goes like this: The International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association have jointly asked the courts to put the CFTC position limit rule on hold, on the basis of their claim it will be overturned by a legal challenge. The groups main point is that the CFTC never studied whether the regulation was “necessary and appropriate”, or quantified the costs tied to implementing the rule. Court actions filed by the two groups, backed by banks such as Barclays Plc and JPMorgan Chase & Co challenges legislation specifically designed to prevent commodities traders amassing large positions with the intent of moving markets.

The concentrated short positions at the centre of a silver market manipulation lawsuit against JP Morgan, are the very same that JPMorgan now brazenly ask Judge Robert Wilkins to allow them to continue amassing. Multiple filings claim that JP Morgan built outrageously large short positions in silver between March 2008 and October 2010, expressly with the purpose of moving the market to the downside. According to a consolidated class action dated 12th September 2011, JPMorgan regularly held 24-30% of the open interest in all COMEX silver futures short contracts then trading, and sometimes held 30-40% of the short open interest in the important COMEX silver futures contracts expiring in the "front" months during the "class" period. Veteran silver market analyst Ted Butler, has run a successful 25 year campaign to convince the CFTC that concentrated short positions in the silver market are enabling manipulation, and the new Dodd-Frank rules conceived to prevent excessive speculation in commodities markets have also included new smaller proposed position limits, it seems to satisfy those who agree there has been manipulation or danger of manipulation in markets. The proposed new rules at risk under Judge Robert Wilkins, will only allow a single market participant to hold 10% of the first 25,000 contracts and an additional 2.5% of all contracts afterward in no-spot-month futures contracts. While in spot-month limits, which apply to the period immediately preceding contract expiration and physical delivery of the commodity, there will be no change to the limit of 25% of "deliverable supply."

CFTC Commissioner Bart Chilton has publicly stated on a number of occasions that he believes attempts have been made to manipulate the silver market silver market. At an October 2010 hearing, he said: “There have been fraudulent efforts to persuade and deviously control that price".  In Nov 2011, Chilton told King World News he thought there was manipulation in the silver market. And in January 2012 he told James Puplava he thought "concentrated positions have the ability to manipulate markets", and "that it would appear the silver markets have been manipulated". Unfortunately such comments by a Commissioner of the CFTC, are no substitute for CFTC findings.  A definitive outcome in the three and a half year long CFTC silver investigation may well lend support to the CFTC push for position limits, however one may be forgiven for being skeptical at the commitment of the CFTC to enact position limits while the regulator remains double-minded on the matter. Unfortunately for those hoping to see silver market reform where one large bank is prevented from dominating, the CFTC's marathon silver investigation now in its fourth year, has yet come to any conclusion, nor has any timetable been announced for it's finalization.

Friday, March 2, 2012

Wednesday's Intervention - Too Big To Spoil?

 This is what a 6.5% fall in silver looks like..

On Wednesday 29th February, in the space of minutes, gold fell by 5% and silver by 6.4% on the COMEX. A growing chorus of managers and market analysts are suggesting the market pummelling was more than just volatility at work: 
  1. Spokesman for CIBC World Markets:
  2. Caesar Bryan, 25 year veteran Gabelli Gold Fund manager:
  3. Hugo Salinas Price, president of the Mexican Civic Association for Silver:
  4. Ross Norman, Sharps Pixley, London:
  5. William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey on Bloomberg:  "and it almost seemed as if Bernanke was trying to take the steam out of the commodity market.”
  6. JS Kim,
  7. Single 31 tonne sale on the CME:’s-testimony
  8. Sprott Asset Management's John Embry:
  9. Jim Sinclair described it as an Intervention:
  10. What reason to liquidate a big position?:
  11. Resource Investor: "no reason to justify massive selloff":
  12. 225,000,000oz dumped in minutes?:
  13. Fascinating charts of the event:
  14. Gold fell more than $60 in minutes and can be manipulated on COMEX by big forward paper sales:
  15. Plunge in gold was entirely a manipulation of the paper futures:
  16. Manipulation plain and simple:
  17. Thirty-one tonne sell order:
  18. Who sold millions of ounces of silver?:
  19. James Turk - Intervention out of desperation:
  20. Andrew McGuire, silver whistleblower - massive paper contracts hitting the market on no real news:
  21. Dan Norcinini - Orchestrated hit to prop up bond market:
A common theme among all the reports above is that a single seller dumped massive quantities of futures into the market without regard to obtaining the best possible price. Fortunately whether the selling was a deliberate attempt to influence the market or not, we needn't fear. The Dodd-Frank legislation enacted last year is designed to enable regulators to prosecute reckless behaviour regardless of intent.  One would therefore expect the controversial legislation to trigger sufficient grounds to investigate Wednesday's chaos. Of course any CFTC comments regarding their intentions would be most welcomed by the public.

As to the possible identity of the alleged seller, the Bank of International Settlements is so far the one of the select few entities to lay claim to being the mastermind behind precious metals market manipulation: However to corroborate such claims and give a clue as to how such gold and silver operations may be affected, the Bank of Japan was reported by the Wall St Journal on Feb 7th to have revealed it has engaged commercial entities to assist with secret currency interventions. It does not require a large leap of the imagination therefore to wonder if central bankers may have found the occasion of Wednesday's appearance before the House Committee and Speech by their most prominent member, a tempting occasion to intervene in the gold and silver markets via the commercial banks.

Now my hypothetical question to the regulators is this: If the CFTC investigated such an occasion as Wednesday's gold and silver smash as they should, and found a commercial entity 'intervening' recklessly in the gold and/or silver market at the behest of a central bank, would that entity share the same immunity from prosecution as its central bank sponsor and if so, what oversight measures may there be to ensure the bank involved was not tempted to trade its own account for illegitimate profit as it carried out its sanctioned government business?

Friday, February 24, 2012

BIS advertises gold market intervention

Further evidence of a broad gold market containment policy has emerged from GATA. On page 17 of a 2008 BIS presentation the Bank of International Settlements advertise Forex & Gold Services Interventions as part of a suite of products to their clients, the central banks themselves: 
The new admission accords perfectly with the previous central bank claims that they are indeed intent on suppressing gold markets whenever they see fit:

1. BIS official William S. White in a speech to central bankers and friends at a BIS conference in Basel, Switzerland, in June 2005 stated that among the five objectives of central bank cooperation, was "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."

2. The Reserve Bank of Australia 2003 Annual Report statement that gold reserves are “held primarily for intervention in foreign exchange markets"

3. Fed Chairman Alan Greenspan’s comment before a Senate committee on July 30, 1998; "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

4. EX Fed Chairman Paul Volcker writing of the events of February 12, 1973: "That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."

A budding detractor such as John Nadler or Jeffrey Christian need go no further to see the perfect example of intervention, executed with precision swiss timing than Sept 6th 2011. Five minutes before devaluing the Swiss Franc, gold succumed to a perfectly executed reverse thrust dropping $50 in a flash.

Gold manipulation by central banks?

You can always trust an economist to come up with the big-picture questions. Indeed, as one heckler poses, why on earth would central banks be interested in the gold market?

The 1975 letter 
 on gold from the Chairman of the Federal Reserve to the President addresses it clearly: The US gold policy will affect the shape of the international monetary system in the generation to come. Are they interested in containing gold’s price? If you believe that entering into a Collusive Oligopoly with Germany would help, certainly they are. You may ask the question; have western central bank gold market operations since 1975 (sales) been indicative of a gold price containment policy, or conversely were those sales supportive of a free market gold price?

While you think about that, the subject of this thread, the Bank of International Settlements is the central bank’s central bank. All central banks operate under the rules of and report to the BIS. The BIS mission to ensure monetary and financial stability would certainly be assisted if the gold market interventions they claim were aimed at containing the price of gold. To be convinced otherwise as some may try, one would want to see how much, where and when the BIS or its agents had spent on gold market interventions over the past few years.

Alas the data on gold market interventions is top secret but any time you need to know about currency interventions, most central banks publish that after the operation. For instance the Bank of Japan recently revealed it had secretly used commercial banks to assist in currency market interventions. Naturally such an unbalanced approach to reporting only arouses suspicions of a gold price containment policy. If only the hecklers could produce the evidence required to prove that BIS gold market interventions were trifling and meaningless.

Lastly, the ridiculous argument that a rising gold price refutes the existence of a gold price containment policy, is like trying to prove there is no greenhouse policy because carbon emissions are out of control!

Wednesday, January 18, 2012

Central Banks Doing Tricky Stuff With Gold

Could there possibly be a connection between the motive of central bankers and the decline in gold lease rates and gold prices in late 2011??? (sorry subscription link only) 

"There is growing evidence that short-term loans from some central banks to commercial banks could well have increased considerably [in 2011], with the latter then using gold to swap for US dollars," GFMS said.

As the squeeze in the dollar funding markets intensified, short-term interest rates for lending gold fell to record lows in late 2011. The rate for lending gold for one month fell to -0.57 per cent in early December, implying that a bank would have to pay to swap it for dollars."

If anyone wants to know why central banks were literally throwing gold at the commercial banks late last year you need go back in history no further than July 24, 1998, when before the House Banking Committee, and six days later before the Senate Agricultural Committee, Chairman Greenspan made the following statement: "Central banks stand ready to lease gold in increasing quantities should the price rise."

Friday, January 13, 2012

The Republican Race and the Former Vice Chairman's Unease

Last October I asked Nightly Business Report to help determine if the program was really the source of an often miss-cited quote (google search up to 70,000 times), which was supposed to have been uttered by Federal Reserve Bank vice chairman Alan Blinder during a 1994 interview. Surprisingly NBR's time-consuming check of the (pre-1995 digital) archives revealed nothing among 1994 interviews with Blinder to suggest he had said the quote widely attributed to him. So after checking with Blinder and others we deduced it was likely the quote may have actually sprung from a 1999 Wall St Journal article in which Blinders survey findings amongst his peer central bankers were published. Accordingly American Banker publication ran an article on the situation two weeks ago, describing the former vice chairman's unease and how I have helped shed some light on the issue:
Gata also previously covered the issue:

There is more to the issue than just a miss-cited quote, or even that the former Federal Reserve Vice Chairman may have been offended. The American Banker article predictably misses the most interesting part of the subject for the public, which about central bankers trustworthiness and what that means in 2012. Indeed 84 heads of the 127-strong BIS central bank grouping who responded to Blinders 1998 survey ranked openness and honesty to the public as lowest among duties: In this respect the 70,000 Internet bloggers are correct to say that central bankers are not very honest to the public, but possibly only incorrect as to the source and date of the quote. I say possibly because since NBR archives were checked we have discovered that the Blinder survey was not published until 1999, so it is not surprising that the 1994 archives search came up blank. It would of course be interesting at least to the 70,000 not to mention the former vice chairman himself to finally determine if an 1999 NBR interview did cover the issue. We would expect Blinder in such an interview to be critical of the prevailing attitude amongst his peers because as he says, and he is on the record that his own views on openness and honesty to the public are the complete opposite. Naturally the general public are bored with mere exercises in obscure citation, but the interest is far more than academic. 

The story is most relevant in 2012 because of a long-held deep suspicion of the Federal Reserve bank held by a leading Republican presidential candidate who carries with him into the pre-selection race a 30-year-old platform policy to have the secret bank audited: Ron Paul is opposed to the Federal Reserves secrecy about central bank activity in the gold market and means to do something about it. 70,000 misquoting Internet writers and their readers are cheering him on, and who knows maybe even Alan Blinder himself? Ron Paul may not win the Republican race to the presidential ballot, and he has no illusions about being President himself but his policies will undoubtedly have an impact. As Charles Krauthammer wrote in the Washington Post today, Ron Paul is this year close to lifting his causes to a position of prominence:

Perhaps this is an ideal opportunity for NBR to have a look into the 1999 archives and discuss how a former Federal Reserve Bank Chairman's subsequently unfortunate Internet experience is closely tied to the changing policies of a major political party in 2012?

Saturday, November 12, 2011

US Futures Market Fiasco

Futures markets based in the US (and overseas) are in disarray following collapse of MF Global financial services and futures brokers, and the mystery disappearance of $600 million of client’s funds. The CFTC has launched an investigation into the ‘disappeared’ funds as has the SEC and the FBI .

Ted Butler the veteran campaigner of COMEX reform has written that the market operator CME Group, whose regulatory role in the security of client’s funds appears to have failed dismally, must shoulder the lion’s share of the blame:

Not only have the CME failed as they promise to regulate and check the security of their brokers and failed to protect the customers money, but as Butler points out the CME Group have so far have also failed to backstop the ‘disappeared’ funds as they promise on their webpage: CME Clearing's Financial Safeguards System where $8 billion of financial safeguards is boasted as available; 

The financial integrity of CME Clearing is a foremost consideration of CME Group Board of Directors, Clearing House Risk Committee, and management. CME Group is vitally aware of its role in international financial markets and believes that its financial safeguard system, designed for the benefit and protection of both clearing members and their customers, is second to none.

Ironically as Butler points out CME cannot or will not use even $600 million of that to guarantee MF Global customers.
Dramatically for a short time yesterday, Robert Lenzer of Forbes magazine claimed the trustee had ‘found’ all the funds at JP Morgan. Or that’s what my Google search told me:

Many of MF Global's trading clients have been in touch with me the last few days. They are petitioning the court, JP Morgan and the Trustee to free up these ...

Good luck reading the story now because access to it has now been taken down from the Forbes website. Perhaps JP Morgan were not happy about the Trustees discovery.

Perhaps also the same people at CME who failed to safeguard the silver market from JP Morgan were responsible for safeguarding MF Global customer funds from JP Morgan too.  I sincerely hope the devastated customers of MF are not hoping for their funds back anytime soon. US financial regulators are known for their inability to resolve futures market irregularities involving CME and JP Morgan. The famous 3 year long CFTC investigation into silver manipulation does not appear to be coming to any resolution soon either.