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Fed Tightening Fears Continue to Weigh on Metals Markets
Trial Begins in Gold & Silver Manipulation Case Against JP Morgan Official
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Fears of further Fed tightening continue to weigh on metals markets.
On Wednesday, the Federal Reserve released the minutes from its most recent policy meeting. As CNBC reported, central bankers remain fixated on inflation.
CNBC Reporter: The minutes of the latest Fed meetings show that officials agreed that another rate hike of 50-75 basis points would likely be appropriate at its meeting later this month. Officials also acknowledge that there could be an even more restrictive stance that could be appropriate if inflation remains high. Now, the minutes show that Fed officials were worried about inflation becoming entrenched, that was debated several times in this document. Many participants viewed that as a significant risk.
The Fed has abruptly pivoted from insisting inflation is transitory to scrambling to prevent it from becoming entrenched. But worsening economic conditions may force it to pivot abruptly again to try to stave off a recession.
FOMC policymakers didn’t mention the “R” word in their latest statements. But markets are now pricing in an 85% chance of a recession. Data to come may confirm that we are already in one.
But as usual, the Fed will find itself behind the curve and late to act.
Among the indicators flashing recession warnings is the copper price. Often referred to as “Dr. Copper,” the industrial metal tends to have a better forecasting track record than most Ph. D economists.
Copper prices have plunged more than 30% from their spring highs. Although they did rally strongly on Thursday, the magnitude of the decline suggests that industrial demand and therefore economic output is heading down.
As for gold, it tends to be much less economically sensitive than base metals. It can even move in the opposite direction during recessions.
For now, though, the gold market is struggling to find support. The monetary metal currently checks in at $1,755 an ounce, down 3.5% for the week.
The silver market was unable to hold above the $20 level this week. Silver is off 2.6% since last Friday’s close to being spot prices to $19.57 per ounce.
Platinum is essentially unchanged to trade at $909. And finally, palladium is putting together a near $200 or 9.5% gain for the week to come in at $2,204 an ounce as of this Friday morning recording.
Despite strong, sustained demand for physical bullion, the paper trading markets for precious metals continue to be dominated by institutional short sellers. The ongoing suppression of gold and silver prices is causing physical investors to feel frustrated – perhaps even cheated.
These markets have often been the targets of organized manipulation schemes. But some of the bad guys have been caught red handed and now face being brought to justice.
This week brought some major developments in metals market manipulation cases.
On Wednesday, a U.S. appeals court upheld the 2020 fraud convictions of two Deutsche Bank futures traders. The traders had placed "spoof" orders for precious metals contracts, generating phony market action to manipulate prices in their favor.
And on Thursday, the trial of one of the most powerful players in the paper gold market kicked off. Former JPMorgan Chase managing director Michael Nowak stands accused of generating hundreds of millions of dollars in profits from fraudulent precious metals trades.
Using spoofing and other tactics to manipulate futures markets, Nowak allegedly helped enrich J.P. Morgan's top clients at the expense of small traders. Prosecutors charge him and two colleagues with running a criminal enterprise.
The trial could expose some of the banksters’ most closely guarded secrets. They have a long history of engaging in shady practices to dominate futures markets.
According to Bloomberg, J.P. Morgan controls three times as many precious metals derivative contracts as the next biggest player. If the mega bank were forced to relinquish its market dominance, it could be a game changer for price discovery in metals contracts.
But for now, J.P. Morgan continues to throw its weight around in gold and silver markets on a daily basis. And it continues to fuel suspicions that it is keeping an artificial lid on prices.
Gold and silver investors would be wise to steer clear of futures markets and derivative products that are controlled by large financial institutions. There are no paper substitutes for physical metal. And the fewer people who play in the rigged financial casinos, the less control the big banks will be able to exert on prices.
Turning to current market conditions in the U.S. retail bullion market, premiums have not yet risen in response to overwhelming demand over the past week triggered by the latest market correction – but that could change soon if the bargain hunting persists. With only a couple exceptions, there are no shipping or processing delays at Money Metals.
Meanwhile, bureaucrats at the dysfunctional U.S. Mint have again fallen flat on their faces, this time with respect to 2022 Gold Eagle production. Poor planning at the government institution will lead to shortages of nearly all types of gold Eagle coins – and higher premiums as well.
Money Metals continues to encourage customers to steer clear of gold and silver Eagles and choose from the many other more cost-effective ways to accumulate precious metals. There’s really no good reason to tie up good money in high premium items when there are so many other great options available – whether it be coins minted by other sovereign mints, or privately minted rounds and bars.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.