The big buzz yesterday in the precious metals market was the news that Deutsche Bank has agreed to settle charges for its role in manipulating the London Bullion Marketing Association (LBMA) daily gold/silver price fixings. My view on this, albeit admittedly jaded, is that it is akin to the settlement charges being paid by the big Wall Street banks for their fraudulent behavior in the housing bubble mortgage market. Although Deutsche Bank has agreed to “spill the beans” on other banks, I have yet to hear any mention of JP Morgan, Citibank, Goldman Sachs or any number of other western bullion banks who engage in daily price intervention in the gold and silver futures market on the Comex.
My view on the matter is that until I see otherwise, this is nothing more than a “we took care of the problem, move along there’s nothing else to see here” situation. DB is like a trapped felon who blinked in the game of “Prisoner’s Dilemma” and gave up a couple of names in order to let it continue forward in its endeavor to save itself from collapse. While other indictments may be doled out, I do not see this as an advancement in the effort to reform the trading activity in the gold and silver markets. After all, the banks are manipulating the market on behalf of the western Central Banks and Governments who are highly motivated in their effort prevent a sustained rise in the price of gold from signaling the west’s continued financial and economic deterioration.
While the Deutsche Bank announcement may trigger some celebratory dances in the precious metals community, rest assured that for every bank removed from its gold/silver market manipulation service, they will be replaced by banks “sitting on the bench.” The “reformed” LBMA gold fix process is proof of concept. The prima facie format has been somewhat altered, as have the names involved. But it can be argued that the “reformed” price fix process is perhaps even more permissive of manipulation than the old format.
The more interesting issue in my opinion is whether or not the bullion banks’ ability to keep the price of gold and silver capped with any relative degree of success is fading. History has proved that all forms of market intervention eventually fail. If the intervention in the precious metals market did not ultimately fail, it would be a statistically unique event. I would have the readers recall the fact that the Rothschild family, which founded the London gold fix, withdrew from its involvement and connection to the LMBA, including the twice-daily fix process, in 2004. Something like this happens for a reason…
It’s been my view that silver hit a bottom in mid-December when the Comex silver contract closed at $13.72. The bottom was affirmed the day that silver was instantaneously plunged down to $13.58 for the purposes of the LBMA price fix and the futures immediately thereafter snapped back over $14. That was perhaps the most audaciously blatant act of manipulation that I’ve witnessed in any market in over 30 years of involvement in all aspects of the financial markets. I also believe it was a last-ditch capitulative effort of sorts by the bullion banks. And, of course, the LBMA never did offer an explanation for the egregious price anomaly.
Since mid-January the price of silver has been uncharacteristically “buoyant,” especially in relation to the price-action in gold. In general, silver outperforms gold on days when gold is being successfully manipulated lower and, in general, it outperforms gold on rally days.
I’m not an adamant technician or chart-reader, but the two graphs below are suggestive of a market that is ready to make make a big move higher (please click in the images to enlarge):
The graph on the left is a 2-yr daily of Comex silver. It appears to have carved out a nice bottom and it has broken out above both its 50/200 dma’s after successful “re-tests” of each. The graph on the right is 16-year weekly that goes back to the beginning of the secular bull market in the precious metals. After the big move up from 2008-2011, silver (manipulatively) pulled back a 16-year uptrend line and bounced.
Whether or not this is nothing more than a short-term bounce or the start of the next big move higher remains to be seen. I have told colleagues since the beginning of the year that I won’t break out the first case of champagne until silver trades above $20 and moves higher from there. Certainly the systemic fundamentals which support much higher prices for gold and silver grow stronger everyday.
Having said that, I remain firm in conviction that silver will be the best performing asset class at least through the rest of this decade. I also am growing more confident that both gold and silver are set up to make a big move higher over the next several months.
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