Roberts and Kranzler: Are big banks using derivatives to suppress bullion prices?

Section:

By Paul Craig Roberts and Dave Kranzler
Wednesday, July 8, 2015

We have explained on a number of occasions how the Federal Reserve's agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts ("naked shorts") on the Comex (gold futures market) 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 price.

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 that 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 where people buy and sell gold and silver. These markets are 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. 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 rising. ...

... For the remainder of the commentary:

http://www.paulcraigroberts.org/2015/07/08/big-banks-using-derivatives-s...



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