Are Big Banks Using Derivatives To Suppress
By Paul Craig Roberts
and Dave Kranzler
July 10, 2015 "Information
- We have explained on a number of occasions
how the Federal Reserves’ agents, the bullion banks (principally
JPMorganChase, HSBC, and Scotia) sell uncovered shorts (“naked
shorts”) on the Comex (gold futures market) in order to drive down
an otherwise rising price of gold. By dumping so many uncovered
short contracts into the futures market, an artificial increase in
“paper gold” is created, and this increase in supply drives down the
This manipulation works because the hedge funds,
the main purchasers of the short contracts, do not intend to take
delivery of the gold represented by the contracts, settling instead
in cash. This means that the banks who sold the uncovered contracts
are never at risk from their inability to cover contracts in gold.
At any given time, the amount of gold represented by the paper gold
contracts (“open interest’) can exceed the actual amount of physical
gold available for delivery, a situation that does not occur in
other futures markets.
In other words, the gold and silver futures
markets are not a place where people buy and sell gold and silver.
These markets are places where people speculate on price direction
and where hedge funds use gold futures to hedge other bets according
to the various mathematical formulas that they use. The fact that
bullion prices are determined in this paper, speculative market, and
not in real physical markets where people sell and acquire physical
bullion, is the reason the bullion banks can drive down the price of
gold and silver even though the demand for the physical metal is
For example last Tuesday the US Mint announced
that it was sold out of the American Eagle one ounce silver coin. It
is a contradiction of the law of supply and demand that demand is
high, supply is low, and the price is falling. Such an economic
anomaly can only be explained by manipulation of prices in a market
where supply can be created by printing paper contracts.
Obviously fraud and price manipulation are at
work, but no heads roll. The Federal Reserve and US Treasury support
this fraud and manipulation, because the suppression of precious
metal prices protects the value and status of the US dollar as the
world’s reserve currency and prevents gold and silver from
fulfilling their role as the transmission mechanism that warns of
developing financial and economic troubles. The suppression of the
rising gold price suppresses the warning signal and permits the
continuation of financial market bubbles and Washington’s ability to
impose sanctions on other world powers that are disadvantaged by not
being a reserve currency.
It has come to our attention that over-the-counter
(OTC) derivatives also play a role in price suppression and
simultaneously serve to provide long positions for the bullion banks
that disguise their manipulation of prices in the futures market.
OTC derivatives are privately structured contracts
created by the secretive large banks. They are a paper, or
derivative, form of an underlying financial instrument or commodity.
Little is known about them. Brooksley Born, the head of the
Commodity Futures Trading Corporation (CFTC) during the Clinton
regime said, correctly, that the derivatives needed to be regulated.
However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary
and Deputy Secretary Robert Rubin and Lawrence Summers, and
Securities and Exchange Commission (SEC) chairman Arthur Levitt, all
de facto agents of the big banks, convinced Congress to prevent the
CFTC from regulating OTC derivatives.
The absence of regulation means that information
is not available that would indicate the purposes for which the
banks use these derivatives. When JPMorgan was investigated for its
short silver position on Comex, the bank convinced the CFTC that its
short position on Comex was a hedge against a long position via OTC
derivatives. In other words, JPMorgan used its OTC derivatives to
shield its attack on the silver price in the futures market.
During 2015 the attack on bullion prices has
intensified, driving the prices lower than they have been for years.
During the first quarter of this year there was a huge upward spike
in the quantity of precious metal derivatives.
If these were long positions hedging the banks’
Comex shorts, why did the price of gold and silver decline?
More evidence of manipulation comes from the
continuing fall in the prices of gold and silver as set in paper
future markets, although demand for the physical metals continues to
rise even to the point that the US Mint has run out of silver coins
to sell. Uncertainties arising from the Greek No vote increase
systemic uncertainty. The normal response would be rising, not
falling, bullion prices.
The circumstantial evidence is that the
unregulated OTC derivatives in gold and silver are not really hedges
to short positions in Comex but are themselves structured as an
additional attack on precious metal prices.
If this supposition is correct, it indicates that
seven years of bailing out the big banks that control the Federal
Reserve and US Treasury at the expense of the US economy has
threatened the US dollar to the extent that the dollar must be
protected at all cost, including US regulatory tolerance of illegal
activity to suppress gold and silver prices.
Dr. Paul Craig Roberts was Assistant Secretary of
the Treasury for Economic Policy and associate editor of the Wall
Street Journal. He was columnist for Business Week, Scripps Howard
News Service, and Creators Syndicate. He has had many university
appointments. His internet columns have attracted a worldwide
following. Roberts' latest books are
The Failure of Laissez Faire Capitalism and
Economic Dissolution of the West
How America Was Lost.