Will 2019 Bring A Free And Fair Gold And Silver Market?

JPMorgan Chase and a number of other bullion banks are in a whole lot of trouble. Evidence detailing years of rigging markets and swindling clients is piling up.

Deutsche Bank pleaded guilty two years ago and forked over hundreds of thousands of documents. John Edmonds, a former JPMorgan trader, entered his own guilty plea last month and turned state’s evidence.

The carefully cultivated system of captured regulators may not help the banks this time.

FBI investigators and Department of Justice attorneys are involved now. This investigation is out of the hands of CFTC bureaucrats who hope to avoid rocking the boat and/or land high paying jobs on Wall Street someday.

The DOJ might be ready to actually prosecute crimes this time around. Bankers may have to explain to criminal juries what they have been doing. When they have finished, class-action attorneys and civil juries will get in on the action.

Perhaps for the first time since metals futures began trading, the possibility exists that crooked bankers will be held to account. There is still a long way to go, and there is certainly plenty of reason to doubt the Department of Justice will live up to its name. But there is hope.

Recent Prosecutions Could Spark and End Fake Markets For Precious Metals

It is never too early for market participants to be thinking about what free and fair metals exchanges might look like.

For starters, electronic metals markets need a direct, unbreakable connection to physical supply and demand.

Banks should not be able to meet extraordinary demand for metal with an unlimited supply of paper.

There are days during which futures contracts purporting to represent the entire annual mine production of silver trade on the COMEX. Yet, once all the furious trading is over, barely any actual silver changes hands. That must end.

High frequency trading must also go away. The system which allows preferential treatment for banks and institutions, is, predictably, being seriously abused. It is another way for Wall Street to divorce electronic trading in metals from physical supply and demand.

The metals markets need a lot more accountability. Notwithstanding the impending DOJ action, and any civil judgements which may follow, the bullion banks and other crooked traders have been operating with impunity for decades.

Regulators don't seem interested or able to enforce fair play. Market-based solutions, backed with the genuine threat of prosecution and jail for those who break the law, are worth a try.

It should be easy to launch a metals exchange. Anyone with an idea for better mousetrap should find the barriers to entry as low as possible. And if they cheat, they should not be able to do what Deutsche Bank did in 2016.

The bank, as an institution, pleaded guilty. Not all of the individuals involved will face charges for their crimes. The fines and restitution will mostly be paid by the bank’s shareholders – not the actual crooks.

There might already be a metals exchange which offers fair treatment to participants if it weren't for the current stranglehold on financial markets. The Wall Street monopoly, enforced and protected by federal regulators, is the fundamental problem. It needs to be solved.