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Transmission Failure, Blackout, Car Crash
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(April 6, 2010) The Commodity Futures Trading Commission’s March 25th “Public Meeting to Examine Futures and Options Trading in the Metals Markets” had something to offer everyone - conspiracies, drama, real facts, and spontaneous comedy. 

This sparsely-attended public event made a tremendous splash in the virtual gold world. Who could resist the spectacle of committee-members, seasoned traders, and wild-eyed conspiracists all having their chance to speak – now that’s some good theatre!

Beyond all the fun, it would be easy to draw simple conclusions from these proceedings, by designating ‘bad guys’ and ‘good guys’ depending on your point of view, but then you might miss a lot of real information about the precious metals markets and how they work.

The official program and proceedings, and links to quite a bit of written testimony can be found here:

The stated purpose of the hearings was to consider further restrictions the size of positions allowed to be held by individuals or institutions in the commodities markets. Both verbal and written testimonies were presented to the CFTC.

Over the past ten years or so, there has been a great deal of concern expressed, most persistently by the Gold Anti-trust Action Committee (GATA), about the behavior of entities trading huge numbers of commodities contracts, particularly in the precious metals exchanges. These large traders can have an enormous short-term impact on markets, as they are able to ‘move markets’ seemingly by themselves. GATA publicly deplores such trading, particularly in that it suspects many of the big banks doing such trading are also aiding and abetting the US Treasury and other central banks in efforts to suppress the price of the precious metals.

For gold-bugs and those with sincere doubts about the integrity of futures markets, the most anticipated appearance was by GATA’s chairman Bill Murphy. Unfortunately, he was only allotted five minutes to present testimony, and he took that five minutes and absolutely galloped through about eight minutes worth of material. It was not pretty. You can see it here

What Murphy brought to this meeting was the story of Andrew Maguire, a metals trader from London who contends that he both witnessed and participated in precious metals trades that involved collusion and manipulation of commodity markets. According to Maguire, he actually alerted the CFTC ahead of at least one such instance, kept them in the loop as the action unfolded as he predicted, and the CFTC’s response was, well, nonexistent. Maguire’s tale is documented on the GATA website, in a story aptly entitled:
A London trader walks the CFTC through a silver manipulation in advance.


Below we present Mr. Maguire’s communication with the CFTC on February 3rd of 2010, two days before a particularly vicious whipsaw in the markets – a dramatic pounding of the precious metals markets that Friday 2/5/10, exactly the day that Maguire predicted:

From: Andrew Maguire
To: Ramirez, Eliud [CFTC]  Cc: B Chilton [CFTC]
Sent: Wednesday, February 03, 2010 3:18 PM
Subject: Re: Silver today

Dear Mr. Ramirez,

Thanks for your response.

Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.

I sent you a slide of a couple of past examples of just how this will play out.

Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.

Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.

Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be "invited" on board, which will further add downward pressure.

The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?

Only if a market is manipulated could this possibly occur….

Mr. Maguire’s warning to the CFTC, while it contained unprovables, certainly had the ring of truth. The release of the non-farm payroll report on employment is always an anxiously awaited event in the US-related markets. Ahead of its announcement, expectations are voiced, trading positions are adjusted, and everyone knows that it’s not so much the number itself that will be important, but the markets’ reaction to it. Commodities, bonds, and stock markets all take their cue from this number – and sharp reactions almost always occur, often instantaneously upon its release.

There could not be a better opportunity for a group of well- funded traders to launch a pre-planned landslide, choosing in this instance to sell, sell, and sell the precious metals trading complex, to a not-unexpected result: a rout in the metals market.

Many traders acting alone place bets based on their own hunches, and suffer the consequences if their choice or timing is not good. But by acting in concert, a well-financed group of traders can literally move markets. The lone trader takes his chances, but a successful collusion among a consortium of heavy-duty traders can make for a guaranteed profitable day at work.

Mr. Maguire presented to the CFTC evidence of an upcoming manipulation in the silver market. That event came to pass, and many ‘longs’ were financially the worse off for it. Unless you believe that markets are just inherently unfair to those not ‘in the know,’ such manipulation is at best unethical, and more likely criminal.


“Transmission Failure”

For what it’s worth, there was a transmission glitch during Murphy’s verbal testimony, during which, for those who were following the live webcast, the audio feed failed.

“The presentations were webcast all over the world. But, for some reason the main TV feed failed just when I was making my presentation and then came back on when I was done ... yet another GATA coincidence,” Murphy said in an interview with Scott Smith on the Daily Bell Newswire. Read the entire interview here

Certainly, circumstantial evidence points to strange goings in the gold and silver markets from time to time, most notably on the short side. Trader Mark Epstein’s written testimony before the CFTC hearing relates one such instance:

“Today, I am here to speak about the metals. I make markets in COMEX gold and silver futures, and I typically trade between 1,000 and 2,000 futures contracts in the metals every day. I can tell you all kinds of statistics about the markets and the prices, but let’s take a quick look at 10:15 am on Feb 4, 2010. Somebody seems to have been in a rush to sell gold, and in less than a quarter-of-a-second, they sold about 2,000 futures contracts driving the price down instantly a hundred ticks. This represents 200,000 ounces of gold, or about $215 million dollars worth of gold at that time. That was a very big trade, and it took place in the blink-of-an-eye. There aren’t many players in the gold market capable of playing that big, and I’m not sure what motivated them to decide to overwhelm the price of gold instantly (rather than selling more slowly), but this kind of thing happens in the metals markets. Not even India’s move to buy $6.7 billion worth of gold from the IMF on Nov 3, 2009 created this big of a disruption to the gold futures markets.”

Of course, the big kids on the playground, especially if they work in concert, can wreak short-term havoc on whatever market that they choose to exercise their overwhelming monetary might upon. So, as always, there are victors and victims as the markets roil.

GATA is the chief organization standing up for those who feel that the precious metals markets in the US are manipulated for private gain, and that there is a conspiracy at the highest levels of government to suppress gold and silver prices.

The first issue, short-term manipulation, has been demonstrated to be harmful to holders and speculators in precious metals. But those who participate in speculative markets should always keep their eyes wide open - such is the nature of free markets that it is doubtful that such manipulations are confined only to precious metals.

The more fundamental concern that GATA expresses on behalf of precious metals holders is that suppression of prices in these markets is widely practiced by governments.

And, really, should it be any other way? As we have mentioned here before, it is the duty of Treasury and the Fed to defend the US currency, and to do so by more than just jawboning. Their efforts to boost our fiat dollar’s value against both gold and other currencies, are likely to include covert participation in markets such as commodities, currencies, bonds, and equities. Call it intervention, or price suppression if you must, but to label such actions as part of a hidden conspiracy is simply naïve.


“The Blackout”

The comedic high point of the hearings came during remote video testimony given by Jeffrey Christian of the CPM Group. Especially to gold-bugs, the exchange of views here is interesting, but the ‘black out’ and subsequent exchange soon after minute 5:00 is priceless: http://www.youtube.com/watch?v=jok3XLBz_SI

As Adrian Douglas of GATA points out, the London market (LBMA) trades some $5.4 trillion in gold every year, a sum which is more than half the USA’s GDP. Even more to the point, that $5.4 trillion figure is approximately the value, at today’s prices, of all the gold ever mined in the world since the beginning of time.

Speaking before the CFTC, Douglas characterizes this activity involving gold contracts as “fractional reserve” trading:

“I would just like to make a comment. We are talking about the futures market hedging the physical market. But if we look at the physical market, the LBMA, it trades 20 million ounces of gold per day on a net basis, which is $22 billion. That's $5.4 trillion per year. That is half the size of the U.S. economy. If you take the gross amount, it is about 1 1/2 times the U.S. economy. That is not trading 100-percent-backed metal; it's trading on a fractional-reserve basis. And you can tell that from the LBMA's Website, because they trade in "unallocated" accounts. And if you look at their definition of an "unallocated account," they say that you are an "unsecured creditor."Well, if it's "unallocated" and you buy 100 tonnes of gold even if you don't have the serial numbers, you should still have 100 tonnes of gold, so how can you be an unsecured creditor? Well, that's because it's fractional-reserve accounting, and you can't trade that much gold -- it doesn't exist in the world. So the people who are hedging these positions on the LBMA, it's essentially paper hedging paper. Bart Chilton uses the expression "stop the Ponzimonium" and this is a Ponzi scheme. Because gold is a unique commodity and people have mentioned this, it is left in the vaults and it is not consumed. So this means that most people trust the bullion banks to hold their gold and they trade it on a ledger entry. So one of the issues we have got to address here is the size of the LBMA and the OTC markets because of the positions which are supposedly backing these positions which are hedges, but it is essentially paper backing paper.”

Mr. Douglas is outlining a truism, that often gold traders are simply ‘placing a bet’ on the metal’s value or likely future prices, the physical existence of the gold being an afterthought. The gold itself, represented by contracts, is unknowable and untraceable, involving as it does a tangle of counterparties holding paper promises, one to the other.

If those who are ‘long gold’ on the world’s trading exchanges don’t actually ask for physical delivery, all is well. A promise of gold is sufficient, if you trust the exchange at which you purchased it.

But what if there just isn’t all that much gold out there? A market that underestimates, or ignores entirely, the fundamental scarcity of the item being traded, is inherently fragile. It could potentially be destabilized by a ‘run on the bank,’ should those who hold long gold contracts, ask for delivery in large numbers. This would expose the precarious positions of shorts who, relying on counterparties, may not even know that they lack the means to deliver the goods.

Mark Epstein, in written testimony before the committee, rather effectively describes exactly what futures markets are for:

“The futures markets for commodities of finite-supply are very interesting, and to maintain their integrity, there must be a tight relationship between the futures prices and the physical prices. This attracts speculators to participate and develops an effective marketplace for price discovery, which assists bona fide producers and consumers of physical commodities to hedge the price risks in their businesses.”

Mr. Epstein goes on to point out a situation in 2008 when futures prices and availability of retail-friendly silver bullion were out of kilter, and what naturally followed from that disparity:

“I follow the prices of COMEX silver futures and the prices in the physical silver market. Near the end of 2008, there appeared to be a divergence between the price of the COMEX silver futures and the price of physical silver. So, I bought some silver futures, took physical delivery of 1,000 ounce bars, melted them into 100 ounce bars, and sold them in the retail marketplace. This price divergence lasted for a couple of months, and I wasn’t the only one who noticed. The warehouse stocks of physical silver at COMEX dropped about 20 million ounces as people realized the cheapest way to get physical silver was by draining the inventory from the COMEX. Currently the COMEX silver warehouse stocks are down to about 115 million ounces.”


“The Car Crash”

According to Adrian Douglas of GATA, Mr. Andrew Maguire, whose emails to, and testimony before the CFTC raised allegations of short-term manipulations of the gold and silver markets, the very next day suffered what the conspiracy-minded will no doubt call ‘an attempt on his life:’

“GATA Whistleblower Andrew Maguire Injured in Hit and Run Car Accident”

“On March 25th at the CFTC Public Hearing on Precious Metals GATA made a dramatic revelation of a whistleblower source, Andrew Maguire, who has first hand evidence of gold and silver market manipulation by JPMorganChase, and who has even tipped off the CFTC in advance of manipulative attacks on gold and silver. Just as in the Madoff case the regulator has done nothing to stop such manipulation.”

“On March 26th while out shopping with his wife, Mr. Maguire's car was hit by a car careening out of a side road. The driver of the vehicle then tried to escape. When a pedestrian eyewitness attempted to block the driver's escape, he accelerated and would have hit him had the pedestrian not jumped out of the way. The car then hit two other cars in escaping. The driver was apprehended by the police after police helicopters were called in and following a high speed chase”.

“Andrew and his wife were hospitalized with minor injuries. They were discharged from hospital today and should make a full recovery.”

Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA), sees sinister workings here, and ties the week’s events to a run of bad stuff that happened to him, uh, several years ago, in comments at his lemetropolecafe.com website:

“It's something like out of a James Bond movie. What are the odds that my testimony gets blotted out from live coverage and then our whistleblower and wife get hit by a car the next day? ... The gold scandal story is larger than life to begin with. Now throw this spooky stuff on top of it. Veteran Cafe members will recall that in the early part of this century what happened to me during a six week period ...”

“My car was stolen and then found on a nearby highway one day after the insurance company paid me off. There was no damage to the car, money left in the console, and a cashmere sweater in the back seat.”

“My web site was hacked and somebody sent out a very goofy email supposedly from me, but it was not me.”

“Coming out of a restaurant/night spot less than two blocks from where I live, somebody jumped out from behind a wall and sucker-punched me with brass knuckles. I was out cold and thought my jaw was broken.”

Fortunately for Mr. Murphy, his cashmere sweater was recovered, his email is up and running again, and the jaw of this former NFL wide receiver was not broken. And there is hope that the Anti-gold Cartel’s various efforts to harass and harm him have mysteriously ceased (or we can hope that his streak of bad luck has ended), because Mr. Murphy reports that:

“Nothing like this has happened before or since.”

Not so fast, according to Patrick Heller, a coin dealer who writes in Numismaster.com on 3/30/10 that there were dark implications in the Maquires’ auto accident. He drops this bombshell:

“The Maguires may be considered more than lucky. There are other past would-be whistle blowers about the manipulation in gold and silver markets that died in unusual accidents before they were able to bring forth their evidence.”

Wow. Heller implies that people have been murdered, but doesn’t name a single victim. He tells us that a number of unnamed “would-be whistleblowers,” before they were able to “bring forth their evidence,” died in what Mr. Heller calls “unusual accidents,” the implication being that unnamed members of the Anti-gold Cartel, possibly with psychic powers, detect would-be whistle-blowers, kill them, and make it look like an accident. Double wow.

Whether this sort of unsubstantiated nonsense helps Mr. Heller in his business of marketing gold and silver, we can only guess.



“Summary and Conclusions”

!. Public meetings can be both entertaining and educational. Beyond that, their purpose fades like shadows at dusk.

2. Like it or not, and legal or not, manipulation and collusion are inevitably a part of any free market. In the short-term, innocent victims can and will suffer financially. As they say to the rookie who has just received his first serious hit, “Welcome to the NFL.”

3. Suppression of gold and silver prices is real, and comes from on high. It’s called supporting the national currency. Can you imagine our economy if the dollar disappeared tomorrow?

4. There is no doubt that the actual available supply of unencumbered precious metals, gold particularly, is very much smaller than market activity would lead you to imagine. More ‘paper’ gold is traded via contract every year than actually exists in the world, among parties who are never in physical contact with the shiny yellow metal. If, or when, the music stops, who will actually be holding the real thing?

-Richard Smith, Onlygold.com, April 6, 2010


 

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