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By: Frank Knopers
Traders from the American bank JP Morgan have manipulated the gold market for at least ten years. Three traders placed fictitious orders almost daily to move the prices of precious metals in a certain direction. And there Benefited because it allowed them to buy at a lower price and sell at a higher price. Three JP Morgan traders who manipulated the market for years face long prison sentences.
According to a former trader of JP Morgan, John Edmunds, this form of manipulation was a standard practice. On a daily basis, traders placed large orders, which were often withdrawn within seconds. This form of market manipulation is also known as Spoofing. According to Edmunds, it had been that way for years when he started working for JP Morgan in 2009. Other banks also worked in a similar way to make more profit from trading precious metals.
Edmunds shared how he learned this practice from traders at JP Morgan. If he wanted to sell gold at a higher price, he would first place a sell order just above the market price. He then placed a much larger buy order at a much higher price, to signal to the market that a large buyer in the market is willing to pay a high price. But before that purchase order could be executed, he withdrew it. As a result of this action, the price of gold rose, allowing the trader to sell gold at a higher price. In order to be able to buy the precious metal at a lower price, traders did exactly the opposite. Then they first placed a buy order just below the market price, followed by a large sell order at a much lower price, only to retract the latter within seconds.
This technique didn't always work, but often enough to be profitable. However, since 2010 it is no longer allowed to manipulate the market in this way. Traders are still allowed to withdraw orders, but not if it is part of a strategy to make a profit and dupe other traders. There must be an intention to actually execute the order that has been placed. And that is exactly what three JP Morgan traders are suspected of. The traders' defense is that they never had the intention of deceiving anyone. They also refer to the practice of High Frequency Trading, automated trading of computers that takes place on the millisecond. These algorithms would also manipulate the market, although it is not so visible because it happens so quickly. In order to be able to punish the three traders, more evidence is needed, such as recorded telephone conversations and messages they sent each other.
Christopher Jackman, a consultant commissioned by the U.S. Attorney's Office to investigate these market practices, cited a number of examples in which JP Morgan manipulated the market. He bases this on figures from the CME, the American futures market for commodities. It shows, for example, that in 2010 JP Morgan once placed a buy order for five gold contracts (one contract relates to 100 troy ounces of gold) for 50 cents below the market price, after which the bank immediately placed a sell order for 170 contracts. By comparison, that was more than half of all sales orders that were in the order book at the time. As a result, the Gold price, which resulted in the purchase order for five contracts. After that, JP Morgan's trader canceled the large sell order of 170 contracts. All of this happened within the span of three seconds.
Another example comes from January 2012, when a trader from the bank placed a buy order for 80 contracts, worth $13 million at the time. As a result, the price of gold rose and the trader was able to sell five gold contracts at a higher price. The buy order then disappeared from the order book. All this happened in less than 15 seconds. Similar practices took place with other precious metals, such as silver.
In recent years, several gold banks have been under a magnifying glass that have increased the price of gold in this way. manipulated. In 2020, two Deutsche Bank traders were found guilty of Spoofing, a year later, that happened to two Bank of America traders. JP Morgan's three traders face years in prison if found guilty of this form of manipulation.
JP Morgan is one of the biggest names among the gold banks. Not only does the bank manage a lot of physical precious metals for various parties, it is also a major player in the futures market for precious metals. At the end of March, the bank had $330 billion worth of derivatives for precious metals outstanding, equivalent to about 67% of all banks' holdings. Their position on the futures market is three times that of Citigroup, the second largest player in this market.
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