Weekly Market Update by Retirement Lifestyle Advocates

            This week in “Portfolio Watch”. I’m going to discuss a topic that I am often asked about; that is the manipulation of the precious metals markets.  More specifically, are the prices of precious metals manipulated?

            While I can’t speak to the frequency of the manipulation of precious metals prices, there is undisputable evidence that this market has been rigged some of the time in the past.  This from Ronan Manly of “Bullion Star” (Source:  https://www.zerohedge.com/markets/despite-manipulating-precious-metals-prices-jp-morgan-still-heart-lbma-sbma-and-comex):

With a group of former JP Morgan precious metals traders currently on criminal trial in front of a federal jury in Chicago, accused of engaging in a racketeering conspiracy involving precious metals price manipulation, commodities fraud and trade spoofing, while another group of their colleagues have already pleaded guilty, now is a good time to ask how the bank JP Morgan is still considered fit and proper to not only continue to trade in the precious metals markets, but to continue to literally dominate the entire precious metals industry in London, Singapore and New York, with the support of the London Bullion Market Association (LBMA), the Singapore Bullion Market Association (SBMA) and the CME Group (operator of the COMEX and NYMEX).

While JP Morgan made a deferred prosecution deal with the US Department of Justice (DoJ) and Commodity Futures Trade Commission (CFTC) in 2020 and admitted wrongdoing for the criminal conduct of numerous JP Morgan traders and sales personnel on the bank’s precious metals desk located in London, Singapore, and New York, while paying US$ 920 million in the form of a criminal monetary penalty, criminal disgorgement, and victim compensation in relation to this criminal precious metals scheme, the LBMA and SBMA and CME Group (owner of COMEX), as you will see below, continue to not only welcome the proven criminal bank JP Morgan with open arms, but to allow JP Morgan to operate at the highest levels of each organization.

The current criminal trial, which kicked off on Friday 8 July 2022, with the US DoJ and CFTC as prosecution, accuses Michael Nowak (former head of JP Morgan’s precious metals trading desk), Gregg Smith (former JP Morgan precious metals trader) and Jeffery Ruffo (former JP Morgan precious metals salesman) of being involved in a criminal enterprise that entered and cancelled thousands of fake precious metals futures orders (deceptive orders) for gold, silver, platinum and palladium futures contracts traded on COMEX and NYMEX between March 2008 and August 2016 in order to manipulate precious metals prices as well as manipulate barrier options based on the futures prices.

A fourth former JP Morgan precious metals trader, Christopher Jordan, who left JP Morgan in December 2009, is also accused of similar crimes by the DOJ and will be tried separately.

The Nowak – Smith – Ruffo trail is being presided over by Edmond E. Chang, United States District Judge. Unbelievably (or maybe not), Nowak’s defense lawyer in the trial is none other than David Meister, who from 2010 – 2013 was the CFTC’s Director of Enforcement, and who was at the CFTC during the chairmanship of Gary Gensler during which time the CFTC did a 5 year investigation into precious metals price manipulation, and then shut down the investigation claiming it had found no evidence of manipulation. That could explain why Meister is called “the Gensler Whisperer" by lawyer profile experts Chambers.

At the time the indictment of Nowak, Smith and Jordan was unsealed in September 2019, US Assistant Attorney General Brian A. Benczkowski at the DOJ said:

“The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants.”

In the current trial of Nowak, Smith and Ruffo, the US Government is calling two other former JP Morgan precious metals traders as witnesses for the prosecution, namely John Edmonds, Christian Trunz, and one colleague of Gregg Smith’s who worked with him at Bear Stearns, namely Corey Flaum.

Edmonds and Trunz have already pleaded guilty to their roles in the JP Morgan criminal scheme, and Flaum has already pleaded guilty to manipulating precious metals prices via COMEX futures between 2007 and 2016.

As of the time of writing, John Edmonds, Corey Flaum and Christian Trunz have all just testified to the federal jury in the Nowak – Smith – Ruffo trial.

On 9 October 2018, John Edmonds pleaded guilty to “commodities fraud and a spoofing conspiracy in connection with his participation in fraudulent and deceptive trading activity in the precious metals futures contracts markets”.

Edmonds admitted that:

“from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the COMEX and NYMEX.”

Notably, Edmonds also:

“admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors.”

On 25 July 2019, Corey Flaum (who worked with Gregg Smith at Bear Sterns before Smith moved to JP Morgan) pleaded guilty to attempted commodities price manipulation and admitted that:

“between approximately June 2007 and July 2016, [he] placed thousands of orders to manipulate the prices of gold, silver, platinum and palladium futures contracts traded on COMEX and NYMEX.”

Corey Flaum worked at Bear Stearns from 2006 until 2008, and then worked at Scotia Capital from 2010 until 2016.

On 20 August 2019, Christian Trunz, “a former precious metals trader at the London, Singapore and New York offices of JP Morgan” pleaded guilty to conspiracy and spoofing charges. Trunz also admitted that:

“between approximately July 2007 and August 2016, [he] placed thousands of orders that he did not intend to execute for gold, silver, platinum and palladium futures contracts traded on the NYMEX and COMEX).”

Notably, the DoJ says that Trunz admitted that he:

“learned to spoof from more senior traders, and spoofed with the knowledge and consent of his supervisors.”

Trunz is interesting in that he worked at various times in all three locations that JP Morgan’s global trading desk spans, i.e. London, Singapore and New York.

The guilty please of Edmonds, Flaum and Trunz over 2018 – 2019 then allowed the US Department of Justice to move forward with its indictment of Michael Nowak, Gregg Smith and Christopher Jordan, an indictment which was filed on 22 August 2019, and then unsealed on 16 September 2019. In fact, the Nowak – Smith – Jordan indictment was filed only 2 days after Trunz had pleaded guilty.

            I would encourage you to read the entire article at the link posted above. 

            Here are my points.

            One, despite admitted price manipulation, gold and silver prices have moved steadily upward since 2007 when the price manipulation allegedly began.  This demonstrates that as currency is created, it is ultimately difficult, perhaps impossible to keep metals prices down.

            Two, as noted here previously, JP Morgan paid nearly $1 billion in criminal and civil penalties in 2020 as part of  a deferred prosecution agreement.  The current trial of those accused of price manipulation in the precious metals markets is as a result of the continuation of that original investigation.

            Finally, three, despite these events, JP Morgan remains a prominent player in precious metals markets.  Despite the fines and the deferred prosecution agreement, JP Morgan has three entities that are part of the London Bullion Market Association.  The author of this article, Mr. Ronan Manly comments:

Why have the LBMA and the LPPM not kicked JP Morgan out of their associations? Has the LBMA no moral compass or ethics? Additionally, why does the Bank of England observer on the LBMA Board, Andrew Grice, not call for JP Morgan to be immediately ejected from the London Bullion Market Association (LBMA) and the London Platinum and Palladium Market (LPPM) and permanently banned from trading, clearing and vaulting gold, silver, platinum, and palladium in London?

Perhaps it has something to do with the fact that, through Morgan Guaranty Trust Company of New York, JP Morgan was one of the 6 founding members of the London Bullion Market Association (LBMA) in November 1987.

            I believe that, moving ahead, should the Fed reverse course on tightening (which I believe they will), it will be next to impossible to keep precious metals prices down.

            This week’s radio program and podcast features an interview with Dr. A. Gary Shilling.  Dr. Shilling provides his forecast for all asset classes moving ahead and reveals what he is doing for his clients. You can listen to the show now by clicking on the "Podcast" tab at the top of this page.

“You can’t get good Chinese takeout in China and Cuban cigars are rationed in Cuba.  That’s all you need to know about communism.”

                                                                -P.J. O’Rourke