$1b Fine for JP Morgan Manipulation of Precious Metals

Posted | 24/09/2020 / Views | 7070
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Nearly 2 years after we first reported it here, JP Morgan finally look set to pay for the manipulation of precious metals markets for their benefit.  From Bloomberg:

“JPMorgan Chase & Co. is poised to pay close to $1 billion to resolve market manipulation investigations by U.S. authorities into its trading of metals futures and Treasury securities, according to three people with knowledge of the matter.

The potential record for a settlement involving alleged spoofing could be announced as soon as this week, said the people who asked not to be named because the details haven’t yet been finalized. The accord would end probes by the Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission into whether traders on JPMorgan’s precious metals and treasuries desks rigged markets, two of the people said.

A penalty approaching $1 billion would far exceed previous spoofing-related fines.”

Longer term followers of precious metals markets will have observed these practices where seemingly without reason, a billion dollars of silver or gold is sold into a quiet market.  On no level would that make sense if one was wanting to exit at the best price and maximise profit.

As we always suspected, it was instead large banks spoofing the market down with derivatives whilst loading up on physical metal at lower prices.  The Bloomberg article explains spoofing as follows:

"Spoofing typically involves flooding derivatives markets with orders that traders don’t intend to execute to trick others into moving prices in a desired direction. The practice has become a focus for prosecutors and regulators in recent years after lawmakers specifically prohibited it in 2010. While submitting and then cancelling orders isn’t illegal, it is unlawful as part of a strategy intended to dupe other traders."

As we noted back in April of this year, JP Morgan appeared the biggest participant in this scheme:

“This again highlights the thesis that JP Morgan et al are using the paper future trades on COMEX to suppress the price to amass their own physical hoard.  Analyst Ted Butler estimates JP Morgan alone now owns around 850m oz of physical silver. They own around half of all physical inventories and more than their client’s paper short position.  You can easily do the math from here.  When they either want to or lose control, the world’s largest bank unwinds the paper short, lets the price rip, and owns the world’s biggest hoard of physical silver at those higher prices.  We got a little glimpse of how quickly that can escalate in 2011 when silver neared $50/oz.  It’s not a stretch to anticipate that during the next financial crisis silver could be JPM’s get out of jail card.”

The Bloomberg article notes this practice has been recorded for 9.5 years.  Doing the math, that is around the time of the big take down of the silver market from that $50 high in 2011. Probably just coincidence though yeah?...