Whatever In The Gold Business Appears Cheap Does Not Exist

Posted at 11:41 PM (CST) by & filed under General Editorial.

Hi Jim,

From across the pond. I do not know if you picked up on this ,but if true what implications, if any, does this have for the gold market? As always thank for your precious time.

CIGA Malcolm

Dear Mallory,

Whatever in the precious metals business appears cheap, does not exist. This augurs positive for gold for more complex reason than those which are generally understood.

There was a suit against JPM settled out of court that gave significant indication of how the industry handled storage for clients. It was claimed in this settled suit that no gold or silver was purchased even though insurance and storage fees were charged.

As long as you could count on good and timely delivery of COMEX spot gold and silver, this type of transaction was simply another method of shorting gold and silver for profit.

Now that there is serious question of the durability of gold delivery because of the rate of fall of the warehouse supply the entire storage scheme has greater risk than ever before. This means demand on balance for fraudulent no gold, paper gold, and increased taking of delivery of physical metals from futures exchange warehouse.

Keep in mind that a commissioner of the CFTC said last week, "The CFTC was looking into future exchanges warehouses." It is likely this type of activity took place in any commodity that the banks considered to be manipulative on the short side.

Gold remains a business of these entities as the shorts are covered. When that operation is completed the banks will exit gold storage.

The greatest embarrassment and loss to the gold community will come out of the storage companies that purchased paper as a hedge against physical sales going especially into non allocated accounts. This will explode, causing bankruptcy among storage companies and leaving gold people without their physical gold.

It is questionable that the storage companies, for non allocated accounts, have done anything illegal. It will be determine by what they charge the clients for.

Whatever in the gold business appears cheap does not exist.

Jim

JPMorgan quits physical commodities business
Published: Friday, 26 Jul 2013 | 4:13 PM ET
By: CNBC.com With Reuters

JPMorgan is exiting physical commodities trading, the bank said in a surprise statement on Friday, as Wall Street’s role in the trading of raw materials comes under unprecedented political and regulatory pressure.

After spending billions of dollars and five years building the banking world’s biggest commodity desk, JPMorgan said it would pursue "strategic alternatives" for its trading assets that stretch from Baltimore to Johor, and a global team dealing in everything from African crude oil to Chilean copper.

The firm will explore "a sale, spinoff or strategic partnership" of the physical business championed by commodities chief Blythe Masters, the architect of JPMorgan’s expansion in the sector and one of the most famous women on Wall Street. The bank said it will continue to trade in financial commodities such as derivatives and precious metals.

Pressured by tougher regulation and rising capital levels, JPMorgan joins other banks such as Barclays and Deutsche Bank in a retreat that marks the end of an era in which investment banks across the world rushed to tap into volatile markets during a decade-long price boom.

But JPMorgan is the first big player to exit physical commodities entirely and attention will now turn to Morgan Stanley and Goldman Sachs, which face similar pressures.

Friday’s announcement follows a week of intense scrutiny of Wall Street’s commodity operations, with U.S. lawmakers questioning whether banks should own warehouses and pipelines, and the U.S. Federal Reserve reviewing a landmark 2003 decision that allowed commercial banks to trade in physical markets.

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