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This is a snippet from a recent issue of the Gold
Forecaster with
Subscriber-only parts excluded.
For many years, accusations that JPMorgan Chase,
Citigroup, Bank of America and Goldman Sachs have wide open and huge, exposed
short positions against gold and silver, have been made by groups like GATA
and others. In the United
States these four banks control over 90% of
the derivatives market.
They too will be subject to "substantial supervision and
regulations," including conservative capital requirements and strong
business conduct standards.
U.S. Treasury Secretary Timothy Geithner is
set to propose giving securities and futures regulators authority to police
the over-the-counter derivatives market. Discussions on these regulations
begin next week.
Oil market regulation is the first target so as to keep oil prices
free from speculatively higher prices. Other markets, including Gold
& Silver, are being targeted for regulation at the same time. The Secretary is moving to
address these accusations and ensure that the markets involved are managed in
an orderly, regulated manner.
On the surface it appears that these regulations will simply affect
the markets from the day of the enforcement of the regulations and
thereafter, but it is more likely that actions to clean up their acts will
start much earlier, if there has been market manipulation?
Mr. Geithner stated, “Our plan will
help prevent market manipulation, fraud and other abuses by providing
full information to regulators about activity in the OTC derivative
markets.” The
Securities and Exchange Commission, which oversees securities, and the
Commodity Futures Trading Commission, which supervises futures markets, would
have authority to impose recordkeeping and reporting requirements on the
derivatives. This plan is
geared toward removing counterparty risks by requiring greater use of central
counterparties and imposing stricter capital standards on participants. If Mr. Geithner’s
staff succeeds in bringing true transparency to these markets, either the
charges of manipulation will be dropped or the manipulation will be
halted!
Are the Banks ‘short’?
The sheer size of the derivatives market is enormous, but this is not
too much of a concern in itself, provided the great majority of positions
match each other or stock is held against the ‘open’
positions.
In other words, for example, where someone sells a futures contract,
there will be someone who buys it.
This would ‘match’ the position and remove risk from the
overall exchange position.
However, where there were sales of the commodity that were not
‘matched’ [where there is none of the product to deliver into the
contract] one would be left with an exposed position with no real
counterparty. This is
called going ‘short’.
Going ‘long’ is the other way, but also involves a
seller. The buyer must buy
from some counterparty that should be able to supply the item on the date of
maturity of the contract. If he
can’t then the position of the overall exchange is ‘short’
and can’t deliver stock to the buyer. Once it has stock, the seller
must go into the market to buy the item so he can deliver to the buyer
thereby ‘close’ the position.
The Exchange on which the transaction is dealt is responsible for
ensuring that all contracted items can be delivered on the date of maturity
of the contract. The
exchange itself should hold the physical amount of the item in its own
warehouse that needs to be delivered to the buyers whose position is not
‘matched’. This ensures
an orderly market.
The accusations that have attended the four banks are that they cannot
deliver the physical item because they are heavily ‘short’ to the
extent that prices are heavily manipulated. The closing and subsequent
opening again, of these positions, on due date, enables the
‘short’ position to be perpetuated for as long as the bank wants
to, despite the potential losses or gains sitting in the contract over time. Provided the new regulations are
efficient such exposed positions will be highlighted, bringing the wrath of
the government and the public on these institutions once more.
If they are what will they do?
Imagine yourself holding huge short positions that are carrying
massive losses, what would you do?
The charges made by bodies like GATA are made by intelligent convinced
men who tell us they have indisputable proof of long-term manipulation of the
gold and silver markets. If
they are correct, what will happen?
Subscribers only
If they are what will the CFTC do?
1. The Commodity Futures Trading Commission will hold public hearings
from next week and in August to consider position limits in oil and gas
markets. But that is not
all.
2. A member of that Commission Mr. Chilton said he daily hears concerns
about large positions being held in metals, particularly in silver and
gold. Since last September,
the CFTC's enforcement division has joined other federal and international
regulators in an investigation into potential manipulation and concentration
of positions in the silver market.
3. Chilton said he is unsure whether his fellow commissioners would
support position limits on metals, but is hopeful the idea will gain momentum
during the hearings on oil and gas.
The next few months will see, we hope, GATA’s work bear fruit in
the correcting of market manipulation. We would hope that new
regulations do just what Mr. Geithner promised they
would do, to resolve current manipulation and to prevent future market
manipulation. So what
will happen to the gold market if the banks……….
Subscribers only
Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
GoldForecaster.com
Also
by Julian D. W. Phillips
Is your wealth effectively structured to avoid the pernicious
effects of the regulatory climate that we have moved into? It should be and
we can help you to do so professionally and within the law. Please contact us
for any help regarding this at: gold-authenticmoney@iafrica.com.
Subscribers will be briefed again on this subject in
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Legal Notice / Disclaimer
This document is not and should not be
construed as an offer to sell or the solicitation of an offer to purchase or subscribe
for any investment. Gold Forecaster - Global Watch / Julian D. W.
Phillips / Peter Spina, have based this document on
information obtained from sources it believes to be reliable but which it has
not independently verified; Gold Forecaster - Global Watch / Julian D. W.
Phillips / Peter Spina make no guarantee,
representation or warranty and accepts no responsibility or liability as to
its accuracy or completeness. Expressions of opinion are those of Gold
Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina
only and are subject to change without notice. Gold Forecaster - Global Watch
/ Julian D. W. Phillips / Peter Spina assume no
warranty, liability or guarantee for the current relevance, correctness or
completeness of any information provided within this Report and will not be
held liable for the consequence of reliance upon any opinion or statement
contained herein or any omission. Furthermore, we assume no liability for any
direct or indirect loss or damage or, in particular, for lost profit, which
you may incur as a result of the use and existence of the information,
provided within this Report.
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