Gold & Silver Price Manipulation – The Greatest Trick ever Pulled

By Ronan Manly

Precious metals price manipulation takes many forms, from spoofing of futures to warped market structure where fake gold and silver are allowed to trade.

There is probably no other topic in the gold and silver markets which incites heated debate more than the subject of precious metals price manipulation.

That prices in the precious metals markets are manipulated is not speculation, it is fact, a fact made clear again recently by the Commodity Futures and Trading Commission´s (CFTC) ruling against investment bank Merrill Lynch Commodities Inc (MLCI) for spoofing pricing of gold and silver futures contracts on the COMEX exchange.

The number of investigations, legal cases, class actions and financial headlines involving precious metals manipulation are now so pervasive that it’s hard to keep track of which cases are in motion and which investment banks are under scrutiny at any given time.

But beyond the profit and greed driven bullion bank manipulations gold and silver prices, there is also the issue of central bank policy interventions to suppress the gold price by outright gold sales or using the opaque and secretive gold leasing and lending market. This is a less talked about manipulation given the secrecy of everything to do with central banks and gold, as well as a reluctance of the financial media to broach the subject and a reluctance of regulators to ´go there´ by even looking at central bank gold market activities.

That central bank operations in the gold market have existed is also fact, with such operations covering price smoothing and price stabilization, price pegging, and coordinated gold pools. See BullionStar articles “New Gold Pool at the BIS Basle, Switzerland: Part 1 ” and “New Gold Pool at the BIS Basle, Switzerland: Part 2 – Pool vs Gold for Oil” and “The Bank of England and the London Gold Fixings in the 1980s ” for more background. There is also ample evidence about central bank manipulation documented in various places including on the GATA website.

The motivations for such central bank interventions include protecting the existing financial system, engineering low real long term interest rates, and preventing gold acting as a barometer of inflation.

But beyond even commercial bank manipulation of gold and silver metals prices and central bank policy manipulation of gold, there is arguably another form of manipulation in the precious metals markets which is far more influential in subduing price discovery and which takes the form of the very structure of how these markets trade vast quantities of futures contracts and synthetic and paper gold and silver positions that are completely unconnected with any underlying physical metal. The home of this trading is of course on the US Comex exchange and the unallocated gold and silver markets in London. Both venues of which are ruled by the LBMA bullion banks.

Blundering Herd – Merrill Lynch Commodities Inc

Merill ´Spoofing´ Lynch

Turning first to the recent Merrill Lynch case, in late June this year the CFTC announced that it had fined Merrill Lynch Commodities Inc (MLCI) $25 million for manipulating gold and silver futures contracts on the COMEX exchange between 2008 and 2014. This was done ‘thousands of times’ according to the CFTC, by MLCI traders ‘spoofing’, or placing and then cancelling orders before they were executed. By creating artificial demand or supply and thus false prices, this interfered with the (already broken) precious metals price discovery that would have otherwise occurred.

Interestingly though not surprisingly, much of the direct evidence the CFTC used in its verdict was from the myriad log files of trader chat apps which were used to coordinate the spoofing. For example, in one 2010 chat, a trader was quoted as saying “guys the algos are really geared up in here.  [I]f you spoof this it really moves . . .”.

While a lot of money for most people, a $25 million fine is a paltry amount for a global investment bank such as Merrill Lynch and is just a cost of doing business on bank-ruled Wall Street. However, the ruling at least demonstrates that what many always thought about precious metals futures price discovery as being rigged and manipulated is in fact correct. As well as the $25 million fine, Merrill entered into a non-persecution agreement with the US Department of Justice (DoJ), agreed to cooperate with the DoJ investigation into criminal violations, paid a $11.5 million civil monetary penalty to the CFTC, and had indictments against two of its former MLCI precious metals traders, Edward Bases and John Pacilio.

The Usual Suspects – UBS, HSBC and Deutsche

But the recent case against Merrill is not an isolated event. It follows similar moves by the CFTC in early 2018 where the CFTC charged investment banks UBS, Deutsche Bank and HSBC and a number of their traders for spoofing precious metals futures from as early as 2008, while fining the banks a combined $46.6 million (of which $30 million was levied against Deutsche, and $15 million against HSBC). In those cases, the CFTC worked with the US Department of Justice and the FBI to bring the charges.

Moving forward to this year, in February 2019, the U.S. District Court for the District of Connecticut fined ex UBS precious metals trader Andre Flotron $100,000 for price spoofing and price manipulation in violation of the Commodity Exchange Act (CEA) and CFTC Regulations. In that action, the CFTC found that Flotron had spoofed large orders in the precious metals markets between “at least August 2008 through at least November 2013, while employed at UBS”. This followed the CFTC reopening the case against Flotron in December 2018.

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