By MICHAEL GRAY
There is no silver lining in the alleged fraudulent actions that JPMorgan Chase and HSBC are doing in the precious metals market both here and in London, according to a 40-year veteran on the metal pits.
The two prime-dealer banks, which do the Federal Reserve’s bidding in the metals pits have long been the government’s lead actors in suppressing the price of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association (LBMA).
According to Andrew Maguire’s information given to Commodities Futures Trade Commission regulators, JPM currently has over two decades of silver production wagered on a notational basis that the metal will trade lower than the price when the contract was executed.
Maguire, who was scheduled to testify last week in front of the CFTC’s hearing looking into position limits by the large banks in the metals market — but was knocked of the witness list at the last moment — he then went public with the information he gave the commission.
“JPMorgan acts as an agent for the Federal Reserve, they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and or the US taxpayer,” Maguire said last week in an exclusive interview.
“HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size,” the former Goldman Sachs’ precious metals trader added.
Maguire has been supplying his market manipulation information to the CFTC since last November, after years of profiting from the inside knowledge of how JPMorgan and HSBC were going trade.
In November he contacted the regulatory commission after seeing the abuse and hubris of the JPM traders boasting of their profits.
Maguire sent CFTC commissioners and the investigative staff e-mails on Feb. 3 laying out what the metals trade would look like after the release of the January’s Non-Farm Payroll report which was released on Feb. 5, 2010.
Maguire followed up with e-mails after the trade to say I told you so, but only received a terse follow up from the lead investigator saying: Thank you so very much for your observations.
Many of these “short attacks” occur — according to Maguire — during planned market events such as a US employment report release or options expiration days where JPM and HSBC inundate the deriviative precious metal markets on the New York Commodities Exchange (Comex) with contract prices that are much lower than the current spot price.
Despite any bullish news for gold or silver, any uptick in the price of the precious metals will be stopped out or negated by the huge bets that the future price will be lower.
Insiders like Maguire would get their short positions in early and cash out their profit minutes later in a scene right out of “Trading Places,” with the wager being on gold and silver instead of orange juice.
Neither JPMorgan or HSBC wished to go on the record with a comment on Maguire’s charges.
CFTC commissioner Bart Chilton, who observers say is the only one of the five members who wants to see limits placed on the custodial banks’ precious metal positions said, “I’m appreciative of the information Mr. Maguire provided and I’m glad it was introduced into the investigation.”
Chilton is also seeking more transparency by the larger banks in their silver and gold trading, stating, “We see what their positions are at the end of the month, I want to know what they are doing in the middle of the month.”
CFTC Chairman Gary Gensler — also a Goldman alum — agreed to hold the hearing to look into position limits by the banks.
Chilton is optimistic he can move the issue forward to develop a staff proposal given the revelations of Maguire’s e-mails.
Bill Murphy, chairman of the Gold Antitrust Action committee, testified at the hearing that these banks, JPM and HSBC, are following Uncle Sam’s “Strong Dollar Policy,” which necessitates lower precious metal prices to keep inflation at a moderate pace thereby leading to a stronger greenback.
This policy was developed by former Goldman co-chairman and Clinton Treasury Secretary Robert Rubin in the early 90’s, with the help of Larry Summers, President Obama’s economic czar in published white paper, “Gibson’s Papradox and the Gold Standard.”
The market reaction has been very enthusatic since the hearing with spot silver up over 10 percent and gold has risen 8 percent despite all the mixed economic news.
During the hearing Jeff Christian, founder of the CPM Group and an advisor to the World Bank on its precious metal holdings, said that the London Bullion Market Association, the physical delivery market for gold and silver in the UK has been using leverage, which could depress the price of gold and silver as well.
Christian stated that the LBMA — the same market Maguire trades in — has leverage of about 100-1 on the gold bars settled on the exchange.
In layman’s terms that means if 100 clients requested their bullion bars be delivered the exchange could only give one client the precious metal. The remaining requests would have to be settle for cash equivalent.
“That is tantamount to a default on the trade,” says GATA’s Murphy.
Maguire goes further and calls it a fraud, “If you sell something you do not own then that is fraud.”
Banks say that they are physically hedged for such an event, but market observers say they are hedged with derivatives, which means you have paper backing paper with no precious metals to back up the trade.
Despite gold’s rise each of the last 10 years, Murphy believes the price of gold today would be closer to $2,300 an ounce if the price just moved with inflation.
Maguire believes the price should be even higher given the fear trade which would have sent prices spiking even higher during the financial crisis in 2008-2009 Part of the mission statement of the CFTC states:
The CFTC is to protect market users and the public from fraud, manipulation and abusive practices.
Coincidentally, two days after Maguire’s name was released with the manipulation revelations he and his wife were involved in a bazaar hit-and-run car accident, with London police nabbing the suspect after a short chase involving police cars and a helicopter. Police have charged a known individual, but have not released any further information.
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