LAWRIE WILLIAMS: JP Morgan gold and silver spoofing defined as ‘racketeering’ by U.S. Prosecutors

Probably yesterday’s biggest precious metals story was not only the indictment of JP Morgan’s precious metals trading desk on ‘spoofing’ in the markets, but the extremely serious nature of the charges being brought against the U.S.’s biggest bank.  For years there have been arguments and counter arguments against whether there has been price manipulation in the precious metals markets by the big banks.  This latest prosecution suggests strongly that there is as ‘spoofing’ is a key weapon in the manipulators’ arsenal and JP Morgan is no small regional bank but perhaps the U.S.’s biggest which appears to have made millions, if not billions, of dollars from these alleged activities.

‘Spoofing’ is the practice of making huge buy and sell orders on the futures markets, thus substantially influencing prices, but then cancelling the orders before they are executed.  Prosecutors seem to be suggesting that such manipulative activities were inherited from the practices of Bear Stearns, which was taken over by JP Morgan back in 2008, and have been going on ever since – probably at an enhanced level - but without mentioning the names of the banks concerned.  However it is two JP Morgan traders and their department head who have been indicted.

According to a Bloomberg report, the JPMorgan investigation grew out of a multibank U.S. crackdown on manipulation of commodities markets using techniques including spoofing. The Justice Department had already brought criminal charges against 16 people, including traders who worked for Deutsche Bank and UBS. Seven pleaded guilty, one was convicted at trial and another was acquitted.  The latest indictments may thus be only the ‘tip of the iceberg’ in terms of large scale manipulations of all kinds of markets. 

In the words of Chris Powell of GATA (The Gold Anti-Trust Action Committee) precious metals price manipulation goes much further and that the commercial banks, which are the prime movers in forms of market manipulation,  are working in conjunction with many of the world’s central banks keen to protect their domestic currencies from the safe haven attraction of gold in particular. 

According to Powell, this means firstly that “metals and minerals are underpriced, along with most commodities, because of the price suppression engineered by central banks to defend their currencies and government bonds. Central banks and governments in the developed world don't want gold, silver, other metals, and other commodities to compete with their currencies as stores of value.  (As the recent acquisition of gold by Russia, China, and other governments suggests, gold price suppression has been figured out in some quarters at last and certain countries are turning to gold to regain financial sovereignty.)

Second, it means that there is a vast and uncoverable short position in the monetary metals and other strategic commodities. Thus they have great potential for price appreciation.

Third, it means that Western central banks are not likely to surrender this short position without a fight or another negotiated international currency revaluation.

Fourth, since governments can create infinite money, it means that if you are trading against secret trading by the government, you are likely to lose.

Fifth, it means that if commodity prices ever regain free markets, commodity producers should be prepared for stiffer royalty requirements and windfall profits taxes.

And sixth, it means that people in the mining and commodities businesses may have an obligation to their investors and clients to inform them of the opposition of major governments to free markets and higher commodity prices. It means we all may have an obligation to clamor for governments to tell us the truth about their surreptitious interventions in the markets. For this price suppression works only through deception.

Because it depends entirely on government for its mining claims, royalty requirements, and enforcement of environmental regulations, the mining industry is the industry most vulnerable to government. Any government can shut down any mining company on any pretext at any time.”

Powell said back in 2008 “There are no markets anymore, just interventions” applying the manipulations to all markets, not just those of precious metals.  This has been borne out by a number of prosecutions against traders in key global financial markets, often accompanied by guilty pleas from the individuals indicted.

What is perhaps unprecedented in the latest indictments is the language used by the prosecutors in describing JP Morgan’s precious metals desk as a ‘criminal enterprise operating inside the bank’ and the individuals indicted as partaking in a ‘conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity.’  For several years now, Ted Butler, who is a close follower of precious metals markets with an emphasis on silver, has described JP Morgan’s market activities as ‘criminal’ in the true sense of the word – it now seems that U.S. prosecutors are taking a similar position, thus vindicating Ted’s ongoing campaign.  Indeed Ted’s frequent accusations of JP Morgan’s criminality were made without the bank denying this accusation at any time.

But the JP Morgan employees and past employee, who are the subjects of the indictments, should probably be seen as the mere implementers of an ongoing policy to which even more senior bank employees will have turned a blind eye.  It is hugely unlikely that a part of the business which was continually making enormous profits for the bank would not have raised eyebrows and received tacit approval.  However top management is probably sufficiently insulated from the activities of the more junior staff members (the sacrificial lambs) to avoid prosecution, although the stigma will remain.  One assumes too that those who have been indicted will be well rewarded for taking the fall!

Of course JP Morgan is most probably not the only major bank which has indulged in this kind of activity in the name of mega profits.  Whether the Department of Justice will broaden, or extend, its enquiry into such activity elsewhere, or will see the JP Morgan case as a warning for others to cease and desist from such activities, is uncertain at this point.  Similar activity by the big money may well continue, although perhaps will be even more surreptitious in nature.

17 Sep 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com