Former J.P. Morgan Trader Pleads Guilty To Gold and Silver Manipulation

This piece was originally written for Miles Franklin, the physical gold and silver dealer I write for and buy my precious metals from.

In recent years, as precious metals analysts have attempted to reconcile the routinely counterintuitive price action in the gold and silver markets with the underlying fundamentals, rumors have swirled that J.P. Morgan’s trading desk has been manipulating the price. And this week, a former J.P. Morgan trader plead guilty to exactly that.

The website of the U.S. Department of Justice stated the following:

“A former precious metals trader (John Edmonds) at a United States bank (Bank) pleaded guilty in a proceeding unsealed yesterday 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.

As part of his plea, 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 New York Mercantile Exchange Inc. ”

Of course this is not the first set of charges brought in the precious metals manipulation saga. Deutsche Bank has been caught. And recently the Bank of Nova Scotia was caught as well.

But given all of the attention in the precious metals community that has focused around J.P. Morgan, largely due to the incredible research by Ted Butler and others, the news of this latest case is worth taking note of.

Perhaps because one of the other items of note in the Department of Justice press release was that 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.”

Keep in mind, these are the words of the Department of Justice. Not mine.

And it seems clearly written to indicate that this was not some sort of random one-off event. But rather suggests that it was indeed common knowledge within the firm. And that there are people at higher levels within the bank that were aware of, if not actual participants in the illegal trading behavior.

Which is interesting, because in the Deutsche Bank case, the impression I got from the official release was that part of the agreement included cooperating and helping the regulators go after some of the other players involved. And again with this latest release, the Department of Justice mentioned that “the investigation of deceptive trading practices by others involved in this scheme is ongoing.”

So what does this actually mean to those invested in the silver market?

Perhaps it will turn out to be just the latest piece of evidence confirming that the market is indeed manipulated, to once again just get largely ignored. Yet it’s also possible that maybe there is some will to actually bring integrity to these markets. And that further cases are on the way.

Yet regardless of what the regulators do, the fact that what has long been viewed as conspiracy theory is now becoming more fully documented in a legal setting makes me wonder how much longer it will be before more investors take notice.

Hedge fund managers John Paulson, Ray Dalio, and Jeffrey Gundlach, as well as others have taken sizable positions in gold. And I often wonder how investors like these and others would react if they were simply aware of what’s actually been going on in the silver market.

Especially because the silver market is so small relative to gold, let alone to the stock and bond markets, that it wouldn’t take all that much additional buying power to bring this paper shorting scheme to a halt. And with this latest news, it seems like the once long held secret is becoming public knowledge at a rapidly accelerating pace.

So while it remains to be seen when the final knockout punch will occur, hopefully this news puts to rest any concern silver investors may have still held regarding whether the market was indeed being manipulated, or if people were just speculating on what they couldn’t understand.

My personal view is that this latest case is still just the tip of the iceberg. And if the regulators really are intent on getting to the heart of the matter (especially given that they can get access to the trading records), I don’t see how any legitimate investigation would have any trouble finding conclusive evidence.

Only time will tell whether the ultimate resolution is due to the regulators, or a market participant with deep pockets and a will to force a short squeeze. But this latest news once again confirms that all of the necessary conditions for a significantly higher silver price remain confirmed and in place.

-Chris Marcus

November 12, 2018


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