Just two days after the Department of Justice went as far as to call JP Morgan’s precious metals trading desk “a criminal enterprise”, the gold and silver bullion banks were back at it again on Wednesday. Hammering the price of both gold and silver during the Federal Reserve’s announcement of another quarter point interest rate cut.
Going into the meeting, while it was largely assumed that the Fed would cut a quarter point, this time it was not a guarantee. With some market commentators even suggesting that there would be no cut at all. Which is different than a situation where the market was expecting a 50 basis point cut and was disappointed when the amount was only 25 bps. Although that was not the case in this particular situation.
In terms of the precious metals, a quarter point should have been at worst neutral, but likely still bullish. Yet instead, the prices of gold and silver were both hammered.
Which isn’t entirely surprising given how many times we’ve seen similar price action over the past decade. Yet it is shocking given the news on Monday, that more bullion bankers were being charged, including Michael Nowak, JPM’s precious metals desk chief and a managing director. Who also serves as a London Bullion Market Association board member.
Which means that not only is he the head of the JPM trading desk, but that he’s also a representative of the LBMA. Whose CEO Ruth Crowell states its role is “to ensure the quality and integrity of the metal itself as well as the market participants.”
Well so much for that.
And keep in mind that JPM is also the custodian of the silver ETF SLV. Which makes you wonder what the bank actually has to do before one of the regulatory agencies decides that maybe it’s not in the best integrity of the market to allow a bank that has committed a series of felonies to continue to dominate the trading.
Certainly I don’t want to overgeneralize. And there has been a lot of volatility in the precious metals markets over the past few months. Yet I find it extremely difficult to imagine that there were a large number of investors who heard the news from the Fed, and were in such a rush to exit their positions that they just fired out large market orders that crashed the price.
Especially as a former equity options market maker, I was specifically trained to never execute an order like that. Because if you really have a position that you legitimately want to sell, rather than driving the price down, you’d want to sell it as quietly as possible to get the highest price.
So it was rather amazing to see this play out again, given the charges that were announced on Monday. Because it’s one thing to manipulate a market when nobody’s looking and there’s a chance you don’t get caught. But unless there’s some other explanation that I’m just unable to see, it sure seemed like at least one of these banks was spitting in the face of the Justice Department’s investigation.
Maybe the banks assume that the DOJ investigation is just for show and has no teeth. Or maybe they just don’t care. But in either case, it appears that once again, some trader or group of traders did exactly what other traders were just arrested for 2 days earlier.
Chris Marcus
September 19, 2019
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