On October 26, 2010, as everyone that follows PM markets knows by now, CFTC Commissioner Bart Chilton released the following statement (see Mr. Chilton’s full statement here):
“I take this opportunity to comment on the precious metals markets and in particular the silver markets. More than two years ago the agency began an investigation into silver markets. I have been urging the agency to say something on the matter for months. The public deserves some answers to their concerns that silver markets are being, and have been, manipulated.”
“The legal definition of manipulation under the law is a high bar to prove. It is a much different test than what the average person might consider as manipulation. Under existing law, to prove manipulation, the government is required to demonstrate not only specific intent; we also need to prove that as a result of the intent and market control, that activity caused an artificial price — a point that can certainly be debated by economists. Attempted manipulation is less difficult to prove — requiring an intent to manipulate and some overt act in furtherance of that intent. There are also other violations of law that could contort markets and distort prices.”
“I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”
First and foremost, I encourage everyone that reads this article to please take 5 minutes out of your day and send a thank you note to Mr. Chilton for having the courage to speak out in a regulatory environment that is rife with corruption. I believe Mr. Chilton needs to hear from all of us to know that his efforts in breaking the corrupt strangle hold of banks over gold and silver prices are very much appreciated. Hopefully, our support will encourage him to continue fighting against the bankers on behalf of the interests of the public.
Over two years ago, in October, 2008, I corresponded with Mr. Chilton over what I felt was blatant fraud and manipulation in the Gold COMEX market at the time, though Mr. Chilton respectfully disagreed with me back then. Below is our correspondence from two years ago.
My Letter to CFTC Commissioner Bart Chilton Regarding Potential Fraud in the Gold Futures Market in October 2008 and Mr. Chilton’s Response
On October 1, 2008, I sent the bulk of this information (click here to see the information I sent – this data is password protected and access is granted to all levels of our patrons) to Mr. Bart Chilton, Commissioner of the Commodities Futures Trading Commission (CFTC) located in Washington DC, requesting answers to some of my questions above. In response, Mr. Chilton replied to me with the following (the below message has not been altered in any way):
“Your point is that there are at times price differences between gold in Hong Kong and gold elsewhere, including New York. I know that when our folks looked at this in the past, they found that there are restrictions placed on gold flows into China which likely accounts for the differences (in other words, the Chinese gold market is not a free market).”
“To date, the market surveillance folks are not aware of any manipulative activity in the COMEX gold futures market. However, I think what has been going on certainly deserves closer attention. The simple existence of price differences between different markets isn’t ‘incontrovertible’ evidence of manipulation. Price differences usually reflect differences in supply and demand at the different locations or the effects of impediments to the free flow of the commodity at one point but not at another (such as governmental restrictions). While price differences may suggest improper activity, it would be much more likely that the untoward activity occurred on the smaller and less liquid market (ie, the Hong Kong Market).”
“I am not convinced that what I have said is what is going on – just what I have been told in the past. I will try to get some more information for you.”
In response to Mr. Chilton’s message back then I responded:
“I am aware that Chinese markets are very highly regulated but that does not necessarily mean because the market is smaller and less liquid, that this market is the one being manipulated to a greater extent than the one in New York. To address this issue, I only have two further points (albeit long ones):”
“(1) According to Zhang Bingnan, the Beijing Gold Economy Center President, “Gold prices in China should be 1 yuan a gram, or more than $4 an ounce, higher than the overseas market on average. The premium is a result of the spread between bids and offers in different bullion markets and the exchange rate.” Is this a reasonable statement to you, or are there perhaps other reasons that explain why the premiums are so vastly greater in Asia’s futures markets for gold than the $4 an ounce premium that Zhang Bingnan stated should be the reasonable expectation? The spreads for the past 10-12 weeks have consistently been $30, $40, $60 and even as much as $100 an ounce between the highs in Asia’s futures markets for gold and the lows in the New York futures market for gold [on the same day].”
“As I inquired in my previous message, can you let me know if American banks or investment firms are using these huge arbitrage opportunities to enter and exit short futures contracts the same day or within a 48-72 hour period over and over again? If I am not mistaken, the CFTC should have access to this information. If this has indeed been occurring, would it be possible to let us know who these firms are, and if not, is there any reason why this information needs to stay secret? If this has occurred, while not evidence of manipulation, would this not be evidence that arbitrage opportunities are being leveraged to earn enormous profits in a manner inconsistent with the reasons why future markets were established? And would this not be grounds for further investigation?”
“(2) Secondly, Mr. Chilton, you stated to me that manipulation is most likely occurring in the Asian gold futures market and not in the New York futures market. If this is the case, then why are the spot prices established in Asia much closer to the prices of gold established in physical markets than the spot prices established in New York? Right now, there seems to be four different markets for gold. The spot price in Asia, the spot price in New York later that SAME DAY, the price of bullion (which is often selling at significant premiums over spot) and the price of gold coins (selling for even a more significant premium over the spot price).”
“While I do understand that soaring demand for physical gold, both bullion and coins, are setting higher prices for purchase of physical (real) gold than the prices in paper markets, I still believe that this begs the question of “what is wrong with the price of gold in the paper COMEX markets?” Perhaps I’m unaware of previous occurrences of enormous price spreads of this nature between physical markets and paper futures markets and this has happened before with some reasonable explanation. If you may be able to provide an example to me of previous times in history when spreads of 15% to 40% existed in physical market prices over the prices established in futures markets for the same commodity or asset, then perhaps it will help me understand what is going on with the prices of gold in the COMEX markets. My quest really is to understand the anomalies that seem to still be occurring between the price of gold in the physical markets and the price established in the COMEX paper futures market.”
According to Mr. Chilton’s statement regarding manipulation in the silver markets released this past week, “Under existing law, to prove manipulation, the government is required to demonstrate not only specific intent; we also need to prove that as a result of the intent and market control, that activity caused an artificial price.”
I believe that the huge anomalies in pricing in gold markets that existed on a regular basis during July, August, September of 2008 and that still occur today between the futures markets in Asia and those in London/New York intraday, as well as the significant anomalies between gold pricing in the futures markets and gold pricing in the physical markets is proof that the bankers’ price suppression schemes against gold create an artificial price. Many times, I watch the gold markets in Asia as they remain stable or climb higher all day, only to witness the gold markets crater once the New York COMEX opens later the same day. Basically, all manipulation schemes that Mr. Chilton asserts bankers employ against silver that is proof of manipulation, bankers employ against gold as well. The next logical step is to encourage Mr. Chilton to publicly acknowledge the gold price suppression schemes so I encourage anyone that is reading this article to please write him to encourage a public announcement denouncing banker price suppression schemes against gold as well. Please send any personal proof that you have compiled regarding these schemes to encourage such an announcement. Mr. Chilton is known to read all emails he receives. We can defeat the banksters one small step at a time.
Here is Mr. Chilton’s information below, but before requesting the same tenacity from Mr. Chilton in the gold futures markets as he has demonstrated in the silver futures markets, please do not forget to thank him for his recent efforts. I already have sent him a brief thank you note and so should you. I’m sure Mr. Chilton will appreciate hearing from you.
Bart Chilton, Commissioner
Commodity Futures Trading Commission
Three Lafayette Center 1155 21st Street, NW
Washington DC 20581
Telephone: (202) 418-5060
Fax: (202) 418-5620
BChilton@cftc.gov
About the author: JS Kim is the Managing Director and Founder of maalamalama.
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