'Banging the close' is illegal in commodities, unless you bang it down

Section:

10:25p ET Monday, August 16, 2010

Dear Friend of GATA and Gold (and Silver):

Back in April the U.S. Commodity Futures Trading Commission took action in a commodity market manipulation case that may illustrate what commodity market law enforcement is all about.

As part of a settlement agreement, the commission fined Moore Capital Management L.P. of New York $25 million for attempting to manipulate the platinum and palladium futures markets in 2007 and 2008. The CFTC found that a former portfolio manager for Moore Capital engaged "in a practice known as 'banging the close.' Specifically, the former portfolio manager's orders were entered in a manner designed to exert upward pressure on the settlement prices of the platinum and palladium futures contracts."

Many market observers and particularly gold and silver market observers may laugh at this CFTC enforcement action, insofar as "banging the close" often can be found in various markets in the United States and particularly in the gold and silver futures markets. It's also called "tape painting."

... Dispatch continues below ...



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So how come the CFTC has not acted against "banging the close" in gold and silver futures, or against any manipulation in the gold and silver markets, though such manipulation is now brazen and though the CFTC purports to have been investigating the silver market for years?

It's because "banging the close" and "tape painting" in the commodity markets, while illegal, are actionable politically only when the attempted price manipulation is upward.

Manipulation that suppresses commodity prices is not actionable politically; rather, it is U.S. government policy, implemented through the great investment banks that are effectively government agents, a policy perhaps first discerned by the British economist Peter Warburton in his 2001 essay, "The Debasement of World Currency: It Is Inflation, But Not as We Know It" (http://www.gata.org/node/8303). Warburton wrote:

"Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have overtraded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices."

But any legal action that acknowledges market manipulation is worth publicizing, since the markets are still full of "analysts" who scoff at suggestions of manipulation even when it's a matter of public record and fines of $25 million.

The CFTC's announcement of its fine against and settlement with Moore Capital Management can be found here:

http://www.cftc.gov/PressRoom/PressReleases/pr5815-10.html.

The CFTC's full order against Moore Capital Management can be found here:

http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/le...

A class-action lawsuit against Moore Capital Management for anti-trust law violations in its manipulation of the platinum and palladium markets recently was brought in U.S. District Court for the Southern District of New York. You can find the complaint here:

http://www.gata.org/files/MooreCapitalClassActionComplaint.pdf

If you think you may have been injured by the platinum and palladium market manipulation cited by the lawsuit and would like more information about it, you can contact lawyers at the Berger and Montague law firm in Philadelphia, Merrill Davidoff at mdavidoff@bm.net or Michael Dell Angelo at mdellangelo@bm.net.

GATA remains hopeful that similar lawsuits eventually will be brought against the investment banks that have been manipulating the gold and silver markets. In the meantime, GATA is pressing its own federal Freedom of Information Act lawsuit against the Federal Reserve, seeking access to the Fed's gold records, which the government seems to consider more sensitive than the blueprints for nuclear weapons, surreptitious manipulation of the gold and related markets being a weapon of even greater power for world domination.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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