Sunday, July 5, 2015

Citigroup Just Cornered The "Precious Metals" Derivatives Market

To provide some contextual color, the Hunt brothers were prosecuted for trying to corner the silver market in 1980.  They achieved approximately a 10% long position in silver, trying to profit on rising silver prices.  A closer inspection reveals the government regulators changed the goal posts on the Hunt brothers, turning them from mere speculators to criminals.

Fast forward to today, and JPMorgan has carved out a 90% position in the COMEX gold exchange, while Citigroup has a 70% position in COMEX silver.  It is egregious that the Hunt's were busted for taking a 10% position, while JPMorgan and Citigroup are left unchecked, free to take massive, concentrated (short) positions.

Yes, the bullion banks will claim they are market makers providing liquidity by taking both sides of a trade, but they have been incessantly investigated for manipulating markets by taking outsized, concentrated positions in LIBOR, fixed-income, and commodities markets.  They used this exact same argument prior to the cratering of subprime mortage-backed securities.

In other words, they are not only Wall Street casinos, they are also placing their own huge one-way bets--and getting in trouble when those bets go sour.  These bets aren't hedges--they are wagers placed from their proprietary trading desks.  It is not a stretch to deduce they are up to the same shenanigans in the much smaller precious metals complex.

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