Politicians, financial regulators, banking officials and gold

In a blatant attempt to drive the price of gold down, some large sell orders came onto the futures market during the time when the market was least liquid. You have to ask the question, why would anyone sell at the most illiquid times?  The seller was obviously determined to move the market in the direction they wanted and was not interested in the least in attempting to liquidate at the best possible price. Then, as the prices of equities, commodities and most currencies plunged, it appears that certain hedge funds that were taking a beating in their stock positions used the profits made in gold and silver to cover those losses. This added to the downward momentum. The cherry on the top of the cake was the action taken by the CME. They hiked the margin for gold by 21% and in a falling market! Yet, while the S&P plummeted, the CME reduced margins for this contract by 33%!  And, interestingly, although the price of gold tumbled, very few buy orders for physical gold were actually filled at the lower prices.

When it comes to precious metals especially gold and silver I find the actions of the CME very questionable. While they may proclaim their actions are taken to prevent market volatility, when it comes to gold and silver their actions actually cause much of the volatility. And, since it seems that their actions always favour the short position, I wonder what understanding they have with the bullion banks who have constantly attempted to suppress prices.

In the meantime those banks who have purchased high yielding government debt are now squealing that they don’t want to take their losses. Slightly more than a year ago, these banks purchased high-yielding Greek government bonds and then touted them to their clients as one incredible investment opportunity. All they were looking at was the high yield. The risk involved which was clearly obvious at the time was completely overlooked. And, now as the bonds become worthless, those banks don’t want to lose money. Can you imagine if you told you stock broker that you were not prepared to take the loss on the shares you bought a year ago?

In recent years, the amount of bank fraud going on, particularly in the USA,  is unbelievable. Well-known banks are being sued for securities fraud, mortgage backed securities fraud, insider dealing, lying to clients… the list of claims is endless.

In June of 2007, Morgan Stanley agreed to pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, when in fact it was alleged that Morgan Stanley wasn’t physically storing their gold and silver at all.

Last April, the Securities and Exchange Commission (SEC) targeted Goldman Sachs in a civil fraud case. The lawsuit alleged Goldman sold investors a synthetic collateralized debt obligation (CDO) linked to the performance of certain mortgages without disclosing that John Paulson’s hedge fund, Paulson & Co., helped design the CDO (named Abacus) and was shorting it. As mortgage prices collapsed, the buyers of Abacus – including ACA Financial and German bank IKB – lost nearly $1 billion.

On July 15, 2010, Goldman settled with the SEC for $500 million. The bank neither admitted nor denied the allegations. It said the marketing materials for Abacus contained “incomplete” information.

JP Morgan Chase was fined $228 million for a bid-rigging scheme involving municipal bonds. The Chase ruling is the latest to come down in a series of fines involving a number of banks, including Bank of America and UBS.  This scam that Chase, Bank of America and UBS were involved with was no different in any way, really, from old-school mafia-style bid-rigging scams.

What these banks did is they got together and carved up territory between them, arranging things so that they wouldn’t be bidding against each other in municipal debt auctions. That means the 18 different states involved in these 93-odd deals all got screwed out of the best prices, leaving the taxpayers in those places severely overcharged for their public borrowing.

A few months ago, the Federal Reserve slapped an $85 million fine on Wells Fargo & Co for allegedly steering borrowers into high-cost subprime mortgage loans even though they qualified for safer loans. The fine is the largest civil monetary penalty the Fed has ever assessed in a consumer-protection enforcement action, the central bank said.

Only last week, Harry Markopolis the man who brought down Bernie Madoff’s $65 billion Ponzi scheme, told King World News that, “Bank of New York is going to go down, Eric.  Between Bank of New York Mellon and State Street, these two institutions have stolen between $6 to $10 billion from tens of millions of Americans retirement savings accounts.  It’s been a hell of a crime spree for the bank, but now they are being brought to justice.” Markopolos has led the team that spearheaded this investigation from the beginning.  Harry and his team were the first to expose this fraud.  Markopolos also told KWN, “The New York Attorney General filed suit on Tuesday (against Bank of New York Mellon) for stealing money from pension funds on currency transactions.  This theft has been from tens of millions of Americans, policemen, firemen, librarians, municipal workers, judges and the list goes on and on and they’ve been doing it for decades.

Banks all around the world were coerced by US regulators into introducing the most meaningless, stupid and irritating law in banking history. Suddenly, clients old and new were regarded as terrorists, money launderers, arms and drug dealers unless of course they could prove their whereabouts!  Overnight banks around the world wanted copies of documents relating to your physical address, identity documents and a history of all your financial dealings going back a few life-times. Of course, the authorities claimed that these new laws were necessary to prevent the flows of funds to terrorist organisations. However, there is a very big difference between the individual who happened to have a few thousand dollars in cash and someone else walking into the bank with suitcases of cash. Yet, despite the obvious difference the little guy who merely wanted to deposit a few thousand dollars in cash was instantly flagged. But, if you agreed to sign a string of documents admitting that the money actually belonged to you and nobody else, then the bank called off the raid by the local SWAT team.  This act has done nothing but violate every single persons right to privacy.

When this law was introduced in South Africa under the name Financial Intelligence Centre Act of 2001 (FICA) people who had houses, and cars financed with a bank suddenly had to identify themselves??? The mere fact that they were known to the bank for years was beside the point.  There is not one piece of intelligence in this law and enough is enough. By judging at what is happening with the banking system and as far as I am concerned it should be the client asking questions about the bank and not the bank asking questions about the client. If the global monetary system collapses, you can be assured of one thing. Any money you had deposited in a bank will be wiped out and you won’t have any recourse.

This law also gave the US government an excuse to attempt to destroy what was and still is the most efficient and honest banking system I have ever come across. I refer to what is known as offshore banking. My message is simple. Don’t accept whatever you hear and see on the media. Politicians are corrupt and financial leaders and bankers have lied to us. Take steps to protect your own wealth.  The two important things that anyone can do is to first own some gold and silver bullion. And the second is to have an offshore bank account.  Every single person that has some money deposited in a financial institution should allocate a portion of this money to gold and silver bullion and store it far away from any bank.

The price of gold continues to consolidate between $1600/oz and $1655/oz. I expect prices to trade with an upward bias.  Interestingly, the recent drop represents a 61% retracement of the move that began in May at $1462 and ended in September at $1924.

About the author

 David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. 

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.