Is a Dollar Gold Price tranquil by JPM in Cooperation with a BIS?
By: Nico Simons around Sprottmoney
Nico Simons is a Dutch inquisitive publisher on financial issues, generally financial issues. His articles are frequently published on MoneyInsights.org.
In this paper we interpretation that JP Morgan [JPM] in team-work with a Bank of International Settlements [BIS] controls a dollar bullion cost by regulating their unequivocally widespread position in bullion derivatives in a US Banking System. JPM hold during 1999 – 2014 an normal of 3.262 paper metric tons bullion (derivatives) accessible for interventions on a growth of a dollar bullion cost with a BIS as counterparty. Furthermore we interpretation that a paper volume sets a dollar bullion cost and that there is roughly no change on a dollar bullion cost from a earthy supply and demand. At final we ask ourselves of JPM and a BIS are handling agents for a aloft idea and interpretation that there is no giveaway marketplace for gold.
- First let’s investigate a bullion marketplace in metric tons.
So what we see is that a paper volume on a marketplace for bullion is 92 times (2010) a earthy volume.
- What is a paper volume ?
The paper volume consists of so called derivatives:
- A derivative is a:
- Contract between dual parties
- The value of this agreement is a duty of (derived from) a turn of one or some-more underlying variables (in this box gold)
- The variables themselves do not need to be tradable
- The variables do not need to be marketplace though contingency be measurable. Examples are:
- Financial prices (interest rates, equity prices, unfamiliar sell etc)
- Commodities (precious metals, appetite bottom metals, cultivation etc)
- Derivatives can operation from being elementary to intensely formidable contracts (basic types: futures, forwards, swaps and options) (advanced forms of derivatives: outlandish variety and “structured” products).
Very engaging is how derivatives are traded on a market:
- OTC (Over-the-Counter): Contracts that are traded (and secretly negotiated) directly between dual parties, though going by an sell or other intermediary. The OTC derivative marketplace is a largest marketplace for derivatives, and is mostly unregulated with honour to avowal of information between a parties, given a OTC marketplace is done adult of banks and other rarely worldly parties, such as sidestep funds. Reporting of OTC amounts is formidable given trades can start in private, though activity being perceptible on any exchange. Because OTC derivatives are not traded on an exchange, there is no executive counterparty. Therefore they are theme to counterparty risk, like an typical contract.
- ET (Exchange Traded): A derivative sell is a marketplace where individual’s trade standardised contracts that has been tangible by a exchange. A derivative sell acts as an surrogate to all associated sell and takes initial domain from both sides of a trade to act as a guarantee.
The US marketplace for derivatives was deregulated in 2000 and given than explosively grown. The sum US derivatives marketplace is 10 times bigger than a annual GDP of a US! The same relates for whole universe derivatives market!
So a OTC marketplace is:
- Made adult of banks and other rarely worldly parties
- OTC amounts are formidable to report
- The largest marketplace for derivatives
- Deregulated in a US and explosively growing
- Each counterparty relies on a other to perform
So derivatives are large business for rarely worldly parties, many positively in a bullion market.
- What is a impact of a paper volume (derivatives) on a dollar bullion price?
The dollar bullion cost is dynamic mostly on a London Gold Exchange and a US Comex by a array of (derivatives) sell on a given trade day. In that complement paper claims (derivatives) to earthy bullion are traded usually like earthy gold.
So if a paper volume is 92 times (2010) a earthy volume …Hence a paper volume sets a dollar bullion price. There is roughly no change from a earthy volume.
- Can we brand a critical players in bullion derivatives in a US Banking System?
Yes, a notional volume of bullion derivatives is mentioned in Table 9 of OCC Quarterly Report on Bank Trading and Derivatives Activities  as follows:
What we see here is that 65% of all a bullion derivatives in a US Banking System as during Mar 31, 2013 are hold by JPM and 16% by Citi. The sum notional volume hold by JPM is $ million 95,909 equals with 1,929 metric tons paper gold.
Looking by a years a widespread position of JPM is unequivocally perceptible :
Average paper metric tons bullion (derivatives) during 1999 – 2014 JPM: 3.262.
And here is a marketplace share of JPM in a bullion derivatives in a US Banking System .
So during a years 1999 – 2014 a marketplace share of JPM in a bullion derivatives in a US Banking System varies from 50 – 98%.
If JPM is that prolonged and that widespread in a bullion derivatives in a US Banking System their business indication in this area contingency by unequivocally profitable. The normal trade income (commodities) is $ million 200 quarterly during 2005 – 2015. 41 Quarters…5 losses…36 increase .
The outcome (commodities) of JPM in a US Banking System dynamic mostly a sum trade income of a US Banking System. There are scarcely other banks.
So JPM can be identified as a widespread actor in a dollar bullion derivatives in a US Banking System.
- What are a consequences of JPM’s prevalence in paper bullion in a US Banking System?
- At a slightest there is a probability that JPM with a large bullion derivative position is means to control a dollar bullion cost and creation income with it. For instance if JPM buys 400 ton bullion derivatives in 30 mins of trade a dollar bullion cost will neatly go higher. And JPM knows it on forehand, and their counterparty also knows it on forehand.
- But who can work as counterparty? On whom can JPM rely? We can’t find an equal counterparty in a OCC’s Quarterly Reports per a US Banking System.
- And a large question: Are JPM and its’ counterparty handling on their possess merits for their possess distinction or are they handling agents for a aloft goal?
- A probable counterparty, though any doubt, is a BIS .
To impersonate a BIS:
- Established 17 might 1930
- Located in Basel, Switzerland, outward a US Banking System
- The BIS has 60 member Central Banks, representing 95% universe GDP
- Customers: Central Banks
- Mission: To offer Central Banks in their office of financial and financial stability
- Pursues by (among other things): Acting as a primary counterparty for Central Banks in their financial transactions
- Very, unequivocally gifted in bullion and a bullion market
- Member of a Gold Pool from 1961 – 1968:
- Intention: G10 Banks to rescue Bretton Woods (regulations ubiquitous financial system, bullion standard)
- Surplus countries with endless dollar pot don’t wanted a dollar bullion cost changing
- Selling and squeeze associate for gold
- The Bank of England was a handling representative for a Gold Pool
- Controlled 80% of universe central bullion holdings
- The usually reason since a Gold Pool finished was that a costs of termination a dollar bullion cost were outrageous (they had to sell over 3.000 earthy ton bullion to opposite a ceiling vigour of a dollar bullion price. The US Treasury was creation adult 80% of a bullion losses). The reason of investiture was still present
- Huge in derivatives: Total derivative notional volume as during Mar 31, 2015 (SDR millions 437,191) $ millions 603,022 (= 3 times sum US Banking System $ millions 203,120), thorough $ millions 178,291 notional volume banking and bullion derivatives
The sum notional volume  of a banking and bullion derivatives (only sum amounts available) hold by a BIS as during Mar 31, 2015 is SDR million 129,260.7 (= $ million 178,291) equals with during a max 4.835 paper tons gold.
Do a notional amounts in paper tons bullion by a years of JPM fit in a sum of a BIS  ?
BIS records to a financial statements on derivative financial instruments 
- Gold options (derivatives) are contractual agreements underneath magician a seller grants a client a right, though not a obligation, to possibly buy (call option) or sell (put option), a specific volume of bullion during a fixed price, on or by a set date. In care a seller receives a reward from a purchaser.
- Gold swaps (derivatives) are shared contractual agreements to sell money flows associated to gold.
- Except for certain bullion swaps, no sell of principal takes place.
Let’s now suppose that JPM sells currently a call choice to a BIS of 300 tons (paper) bullion for a dollar bullion cost of 900.- per unit on a 1st of Dec 2016. And also currently a BIS sell accurately this form of choice to JPM during a same cost and a same date. What will occur with a dollar bullion price?
So we can contend that a BIS:
- Is presenting itself as a primary counterparty
- Was member of a Gold Pool, that usually finished due a high costs of termination a dollar bullion cost and not given of other reasons
- Is unequivocally gifted in a margin of dollar bullion cost control
- Their member Central Banks binds approximately 30,000 tons earthy bullion (NB China 1,658 ton)
- Is outrageous in derivatives
- Is large adequate to catch a notional amounts in bullion derivatives of JPM during a years 2004 – 2014 on quarterly base
- Are JPM and BIS handling agents for a aloft goal?
If it’s so obvious, since aren’t there any critical investigations by authorities? Why are they so passive?
The sum universe derivatives marketplace is 10 times bigger than a whole universe GDP. For bullion a derivatives marketplace is 92 times bigger than a earthy market!
Who would advantage from a revoke dollar bullion price?
- Of march a US by gripping adult a appearances of a clever dollar for a infancy of a population.
- Of march countries who wish to modify their dollar pot into earthy gold, before a substantially devaluation of a dollar (NB: The US has to solve a problem of imbalances between a US stream comment necessity and other countries surplus. The longer composition is postponed, a harder it will be. The US is world’s largest debtor, with China as primary creditor. The US has to revoke his bill necessity over time and substantially decrease a dollar. It’s improved to decrease a dollar in a tranquil approach than in a remarkable free-fall).
So watch what they do, not what they say.
- Triffin’s Dilemma (1960): Predicting a detriment of certainty in a bullion value of a dollar by augmenting glass claims in a form of unfamiliar sell reserves, it would no longer be supposed as a world’s haven currency
- Dr. J. Zijstra (former boss of a BIS from 1967 – 1981) expresses in his memoirs a ubiquitous feeling from afterwards that a dollar after 1971 would stop on his ubiquitous stratus, and that a so called Special Drawing Rights (SDR’s) a many distinguished partial of a unfamiliar sell pot would turn (what not unequivocally happened). He also expresses that a aloft dollar bullion cost could probable been seen as a explanation of dread opposite a dollar. Further he expresses that investing in bullion might have turn out of favor, though that all Central Banks see bullion as a many distinguished partial of their reserves, many positively after a dollar bullion cost increasing fivefold compared with a former central dollar bullion price
- In Nov 1998 a PBOC bend network was restructed along a lines of a US Federal Reserve System. Further a PBOC adopted a 25 BIS core principles
- The Washington Agreement on Gold was sealed of 26 Sep 1999 in Washington, D.C. during a IMF annual meeting, and a US Secretary of a Treasury and a Chairman of a Fed were present. The agreement was viewed as putting a top on European bullion sales. The agreement boundary also their bullion leasing and their use of bullion futures and options. The second version, Joint Statement on Gold, was sealed on Mar 8, 2004. The Bank of England did not participate. On May 19, 2014, 21 banks extended a agreement, a IMF complies.
- According to BIS operative paper of Mar 2014 about SDR’s substition in a 1970s and 2000s there was a widespread regard over a sustainability of regulating inhabitant currencies as haven assets. In 1973 US Treasury was prepared to a one-time acclimatisation of some existent dollar pot into SDR’s (taking dollars out of a complement and creation certain they won’t be combined all over again). The SDR devise had to be presented as an encouragement of a SDR rather than a support for a dollar. It would be formidable to sell a SDR’s acclimatisation to inhabitant parliaments though a bullion backstop
- An in 2009 declassified telegram from AM Embassy to a Secretary of State sent in 1968 per a finish of a Gold Pool speaks about: “Remain a masters of gold”
- A new wording word: De-dollarization (2009)
- The Gold Coverage Ratio is approximately 9% and has never been so low. The GCR measures a volume of US bullion pot opposite a financial base
- The administrator of a PBOC (2004) about Chinese achievements:
- No. 1. Gold producing country
- No. 1. Gold immoderate country
- SGE: No. 1. Spot earthy bullion trade center
- SHGE: No. 1. Gold futures trade center
- PBOC (2009) central bullion haven 1,054 tons
- Chinese leaders (2009), for a initial time demonstrate concerns that their immeasurable land of US book bills might not be well-invested. Obama Geithner find to reassure
- Premier Wen worries US T bills might remove value and urges a US to keep a necessity during an “appropriate size” to safeguard a “basic stability” of a dollar (2009)
- Chinese charge force (2009) to cruise expanding China’s bullion pot to 6,000 tons in 3 – 6 years and maybe 10,000 tons in 8 – 10 years
- PBOC Governor Zhou (2009) proposes replacing a dollar as ubiquitous currency, with a SDR
- Gold dispensers in China (2011)
- China buys former JPM building subsequent to Fed, used to enclose adult 20% of a world’s bullion (2013)
- China National Gold Group Corporation General Manager Sun Zhaoxue pronounced a US intends to conceal bullion to safeguard a dollar’s dominance, that a tumble in cost of bullion was premeditated, and a partial of a banking fight (June 2013)
- It is unequivocally peculiar that all those penetrating people of a Central Banks complacent in a detriment of sum $ million 458,307 on their bullion land in 2013, though holding any action. Do they know what’s going on?
- New protected Shanghai for 2,000 tons (2013)
- China has 1,778 tons of earthy bullion (Untrustworthy). They have to store an additional 12.000 tons of earthy bullion to get equal with a relapse of sum central pot as of 2012.
- Picking a peculiar one out
- China (2014) wants to have some-more change on a pricing of gold, now especially London and NY
- China wants to internationalize a Yuan. Backing a Yuan with some bullion will positively assistance it turn a vital ubiquitous currency
- European Union members supposed restrictions on regulating their bullion pot when they launched a euro. The euro covenant prohibits a countries from financing supervision operations by offered bullion hold by Central Banks
- Yes, we are convinced.
Yes, we are assured that a dollar bullion cost is tranquil by JPM in team-work with a BIS with believe of or by sequence from a authorities. Is this not a corner conditions and abuse of power? Most positively there is no turn personification field.
- Monopoly: Exclusive control of a commodity in a sold market, or a control that creates probable strategy of cost (Dictonary.com)
- Level personification field: A conditions in magician everybody has a same possibility of next (Dictonary.cambridge.org)
 Source: The CPM Gold Market Yearbook 2011
 According to Mike Kirk from a Office of a Comptroller of a Currency (OCC), US Department of a Treasury
 Source: OCC’s Quarterly Report
 Source: OCC’s Quarterly Reports
 Source: OCC’s Quarterly Reports
 Source: OCC’s Quarterly Reports
 Source: Dr. P. Clement, conduct of library BIS, Annual Report BIS, site BIS
 Source: Annual Report 2014/2015 BIS
 Source: OCC’s Quarterly Reports, Annual Reports BIS
 Source: Annual Report BIS 2013/2014
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