The alarm bells started going off on April 7. The share price of Deutsche Bank fell sharply that day. This bank is one of the U.S. government’s primary trading partners. It holds a larger portfolio ($70 trillion) of derivatives contracts than any other financial institution on the planet. It is also in financial trouble, with its stock price down 90 percent over the past decade.
Whether it was a coincidence or in response to the increasing risk that Deutsche Bank might fail, the Federal Reserve on April 7 issued three “Advance Expedited Notice of Board Meetings” for “expedited procedure closed meetings” that were held Monday, Tuesday and Wednesday last week. The alleged subjects of the meetings were “Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks,” “bank supervisory matters,” and “periodic briefing and discussion on financial markets, institutions, and infrastructure.”
After the Fed governors meeting Monday last week, Federal Reserve Chair Janet Yellen went to the White House for a first-ever closed direct meeting with President Obama and Vice President Biden.
It seemed obvious to me that for so much sudden activity of emergency meetings there had to be some imminent major financial catastrophe. In such circumstances, you would expect a major public pronouncement at the conclusion of any of these four meetings.
Instead, government officials tried to downplay the significance of the meetings, as if no pressing matters were covered. To me, that further confirmed that something terrible was about to transpire.
We may have found out what was looming less than 24 hours later.
Last Thursday, Deutsche Bank agreed to settle a class action lawsuit that it had conspired to manipulate silver prices at the London fixes, would pay unspecified monetary damages to plaintiffs and cooperate in proving links to the co-conspirators in this case. This was followed shortly thereafter that Deutsche Bank also admitted to manipulating the London gold price fixes and would seek a settlement in that class action lawsuit. Together, I think these developments are probably the most important news story thus far in 2016.
In saying this, I am not diminishing many other major stories. However, I credit this story as being of major importance for at least two reasons. First, for decades there had been extensive efforts by the U.S. government and its primary trading partners to deny that manipulation of gold and silver prices even occurred.
Yet, the repeated price suppressions were blatant. Here’s one of the most extreme examples. Around February 2010 a whistle blower informed the Enforcement Division of the Commodity Futures Trading Commission that a suppression of the silver price the following day had been broadcast in a coded message among banks and brokerages. The next day, as this price suppression occurred, the whistle blower again traded emails with the Enforcement Division discussing details of the event. Yet no prosecution ever happened.
So, not only has the U.S. government actively tried to hide revealing information on price suppression tactics as long as possible, it has also apparently applied pressure to its primary trading partners and the general media to keep things quiet.
Chris Powell, Secretary-Treasurer of the Gold Anti-Trust Action Committee, posted last Saturday (http://www.gata.org/node/16387) that as far as he could tell only Reuters, Bloomberg, the New York Post, and a columnist for London’s Financial Times had picked up this news development about Deutsche Bank’s admissions of gold and silver price manipulation.
One reason that this story is so important is it turns upside down the nature of worldwide financial patterns as claimed for decades by the U.S. government, banks, brokers and the media.
The second reason this is such an important story is the impact this development will have on global financial markets from this point onward. As more people become aware of just how much effort has gone into suppressing gold and silver prices, I anticipate a gradual increase in demand and later a huge surge of demand to acquire physical gold and silver. This stronger demand will come from the public, investment funds, central banks, sovereign investment funds and the like. At the same time, look for paper currencies to accelerate their depreciation against precious metals (which most people will see as rising gold and silver prices).
My first reason to emphasize the importance of this story has to do with overturning the past coverage of actions by the U.S. government, its allies and primary trading partners. My second reason is for future events which, obviously, have not yet been proved or come to pass.
The stock prices of HSBC, ScotiaBank, and UBS, the other parties being sued in these class action suits accusing them of manipulating gold and silver prices could easily get knocked down if their losses on these lawsuits are significant.
This week, precious metals markets are getting even more interesting. The Shanghai Gold Exchange began setting daily gold price fixes Monday. Prices in this market are denominated in the Chinese yuan currency rather than in U.S. dollars as gold is priced everywhere else on the planet. There are 18 participants in setting this fix. There is little involvement by foreign banks in this market as any contracts traded on the SGE require immediate delivery of the physical gold.
Indeed, SGE market participants are not even allowed to sell contracts until after the corresponding physical gold has been delivered to SGE vaults. This is a huge disparity with trading in the London market, or at the COMEX in New York where naked short selling is rampant. Back in 2010, precious metals analyst Jeffrey Christian testified to the Commodity Futures Trading Commission that the amount of outstanding gold contracts in the London market was about 100 times the amount of physical gold in that exchange’s vaults.
Trading volume on the SGE before it began setting daily fixes was much less than on the London and COMEX exchanges. However, since the SGE involves prompt delivery of physical metal to contract buyers, there is a significant prospect that most traders in the London and COMEX markets do not qualify to participate in the SGE. The emergence of the Shanghai Gold Exchange for fixing gold prices could hasten the day when the prices of immediate physical delivery gold and paper gold contracts diverge. Once this happens, the often used practice of suppressing precious metals prices simply by short-selling paper contracts will no longer be effective. Because of this development, along with the problems at Deutsche Bank, I think there is a huge prospect for significant gold and silver price increases by the end of 2016.
As this was being written on the morning of April 19, the spot price of silver briefly topped $17, more than 23 percent higher than the price ended last year. Whether this price surge holds or slides back for a time, I anticipate silver could easily top $18.50 by December.
A higher silver price has helped to bring down premiums on U.S. 90 percent silver coins, the dimes, quarters and halves struck through 1964. You can now acquire them for a lower cost per ounce that you would pay to acquire U.S. silver American Eagles. This lower premium is still higher than it has normally been over the past few decades. However, because you can acquire more silver by purchasing the older coins instead of silver Eagles, I expect demand for 90 percent coins to rise.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
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