Merrill Lynch pays pennies for years of manipulation in the gold market
About the fact that precious metal prices are manipulated Trader 21 mentioned at the inception of the blog in the article "Manipulation in silver - first editions". Back then many were saying that it was a conspiracy theory that has nothing to do with reality. Quotation:
As a reminder, "Conspiracy theory" is a concept that has been successfully used by the CIA in one of the most effective propaganda campaigns of all time. It was used to slander people questioning the official version of the JFK assassination. In this way, since the 1960s, the term has been used as an excellent way of ridiculing independent views and manipulating the crowd.
Those who believed that precious metal prices were manipulated by financial elites who are afraid of excessive appreciation of gold and silver and thus the collapse of the dollar were also called proponents of conspiracy theories.
Sometimes, however, the truth comes to light, and that happened this time. In 2016, Deutsche Bank admitted that it lowered prices of precious metals - first financial charges appeared (Deutsche Bank admits rigging metals market).
Currently, number of investigations, lawsuits, class actions and financial headlines related to precious metals manipulation is so common that it is difficult to track them.
This year, at the end of June, CFTC (Commodity Futures and Trading Commission) announced imposition of 25 million USD fine on Merrill Lynch. Reason? Manipulation of futures contracts on gold and silver in 2008-2014. This took place thousands of times through "spoofing" (impersonating other market participants), making and subsequently canceling orders before they are executed, and by doing so, generating false signals of demand or supply.
For most people, 25 million USD is a huge amount of money, but this is a "small" sum for an investment bank. The same applies to 46 million USD fine in early 2018 for banks: UBS, Deutsche Bank and HSBC (30 million to be paid by Deutsche Bank, 15 million - HSBC). The problem is that penalties are disproportionately low and its purpose is only to show them. In fact, precious metal market is manipulated with full acceptance of establishment, it has not happened yet that anyone gone to jail for that reason.
There is also an issue of central banks interventions which conduct direct sales of gold or use untransparent and mysterious market for gold leasing. This is less frequently discussed manipulation, due to the secret of everything which has to do with central banks, as well as reluctance of the largest financial media to raise the subject.
Motives behind such interventions include protecting the existing financial system and discrediting gold as a real inflation barometer. Of course, today you can also shout that this is conspiracy theory, but there are more indications that the central banks gold manipulation is a fact.
Gold smuggling through Africa
According to Reuters, gold worth billions of USD is being smuggled out of Africa through the United Arab Emirates - gateway to markets in Europe and U.S.. In 2016, the United Arab Emirates imported gold worth 15.1 billion USD (446 tonnes) from Africa, more than any other country. In 2006, the country imported only 1.3 billion USD in gold (67 tonnes). Most gold leaves African countries illegally.
Mining companies from Africa inform that they do not send that metal to the United Arab Emirates, so it must come from another, informal source.
Gold production methods known as "artisanal" are also called small-scale mining. They provide maintenance for millions of Africans. Typically, these methods are harmful to both miners and the environment. African governments, Ghana, Tanzania and Zambia complain that gold is produced and smuggled as a result of criminal activity and that this is associated with high human and environmental costs. As usual, the world turns a blind eye to it.
Video material on this subject can be found here
The IMF again lowers global economy outlook
For the fourth consecutive time, the International Monetary Fund (IMF) lowers its forecast for the global economy development. Main reasons for that are tensions in international trade.
The IMF assumes that global GDP will increase by 3.2% this year against a 3.6% increase from 2018. Forecast for 2020 assumes an improvement, but it should be remembered that it may also change over time.
It is predicted that China (the second largest economy in the world) will record the worst result since 1990 - 6.2%. On the other hand, the IMF assumes lowering interest rates in the US and thus improving the GDP growth of the United States from 2.3% to 2.6%.
Let us remind you that in both 2000 and 2008 reduction of interest rates by the FED was connected with quotations collapse on the stock market as well as with the economic recession. The IMF may be too optimistic this time and we will face further downgrades in upcoming months.
Longest and the weakest economic expansion in United States
One of the most famous investors in the world Mohamed El-Erian noted that current U.S. economic expansion is not only the longest in history, but also one of the weakest.
Current economic growth in the U.S. began in 2009, so it lasts 10 years. United States managed to achieve unemployment rate of 3.6% (50-year low, largely due to changes in unemployment calculation methodology) and real wage growth at 1.6% (taking into account official inflation rate).
However, we can assess these 10 years very critically. The increase was forced by loosening monetary policy on an unprecedented scale. Nevertheless, from 2009 growth on average amounted to only 2.25% annually, which is about 1% less than in case of previous expansions from 1980.
Graph below shows level of interest rates in the U.S. (blue) for the previous 2 cycles before the FED started lowering. It can be interpreted in such a way -in the past U.S. economy have been developing so dynamically that it was necessary to raise rates to over 5% in order to cool it down. Currently, a reduction is already being considered at 2.5% level. Indebted enterprises and citizens can not withstand even such small increases in the cost of credit.
Current bull market is accompanied by unprecedented wealth inequality, which has not been stopped in any way. Currently, 1% of the richest U.S. citizens own more than 32% of the overall wealth. 10% of the richest have almost 70%. Poorer half of the population has virtually nothing.
Percentage of people owning residential property after 2004 peak continued to decline until 2016. Today, despite record low interest rates, it is still below historical average (65.2%) calculated since 1960.
As we can see, the longest U.S. economic expansion in history is also one of the weakest. Currency printing and lowering interest rates translated into asset prices increases in capital markets, and not much more. Over half of Americans admit that they do not have even 400 USD in savings.
Uranium companies are losing on the wave of rumors
On Friday, July 12, some uranium companies sharply dropped due to reports from Australia announcing that Donald Trump rejected the petition 232. Let us remind you that it concerned import restrictions of uranium to the United States. As a consequence, shares of U.S. producers fell by nearly 40% in one day, while their Canadian competitors gained 5% and more. Everything was based only on rumors, and volatility in the market was so high that quotations of some companies were halted.
On Friday after markets close, the White House published a memorandum on this matter, and its key points are as follows:
- The US Department of Commerce (DOC) estimated that United States currently imports 93% of uranium used in energy industry, compared to 85.5% in 2009. Increase in imports strongly limits the competitiveness of domestic companies and may threaten energy security of the U.S..
- Trump did not agree with the opinion on energy security, but decided that the size of imports and the pricing policy of foreign uranium suppliers should be looked at more closely.
- Within 90 days, the United States Nuclear Fuel Working Group will meet to examine the U.S. demand for uranium and possible solutions to protect domestic suppliers of this commodity.
In short, Trump sees the problem, but decides to postpone the decision until more information is available.
It should be added that despite the price storm caused by the rumor, uranium companies fundamentals have not changed, and price of the commodity increased by several percent during this time.
Considering American producers price movement (huge drops), it can be concluded that their current prices discount only inferior information (no restriction on uranium imports). At the moment, these companies are strongly oversold and in the coming weeks they will probably rebound - whether due to price of uranium increases or potential support from the government, which Trump mentioned.
Coal share in energy industry is falling
Falling price of natural gas did what politicians could not achieve, for a long time. Both in the U.S. and in Europe, energy industry is switching to gas plants by closing those using coal. Closing coal and gas combustion power plants reduces CO2 emissions and pollution to the atmosphere.
In Europe, this is a very desirable effect. Carbon dioxide emission allowances are becoming more expensive and combusting cheap gas is even more profitable.
Natural Gas price is approaching lows from 2012 and 2016 ...
... at the same time, CO2 emissions allowances have almost doubled since July last year.
Coal mining by major EU economies such as Germany, United Kingdom, France, Italy or Spain decreased by 40% compared to the second quarter of last year. In the UK, within a decade, coal share in energy production has fallen from 35% to barely 4%. German Chancellor Angela Merkel has announced a total departure from coal until 2038, which we can not believe.
The departure from coal is obviously dictated to a large extent by political arrangements. However, one can not forget that coal is a relatively cheap source of energy, so in the event of economic deterioration or lower budget revenues in individual countries, we can see a return to coal. Ultimately, when the budget breaks, hardly anyone cares about environmental issues.
China bypasses sanctions against Iran
In a gesture of opposition to Washington, Chinese companies continue to import oil from Iran, but instead of reporting import volumes which violates U.S. sanctions, they store oil in port tanks. This began in May when the U.S. again imposed sanctions on hydrocarbons imports from Iran. Two months later, oil still goes to China. Until it leaves the tanks it is officially in transit.
China as the largest consumer of oil in the world willingly buy it at reduced prices, even if it is associated with holding goods for a long time in terminals or tankers. Bloomberg tracked the discrepancy between the amount of Iranian oil delivered to China and the amount settled by Chinese customs. China received about 12 million tons of Iranian oil (from January to May), and customs duties settled 10 million tons. 2 million tonnes "disappeared", which means they are stored.
Washington has not yet commented on Chinese activities. In any case, the situation shows that Iran can count on support from Beijing in difficult times. Once again, it turns out that Iran is much more challenging for the U.S. than in previous years, e.g., Iraq or Libya.
Iran legalized cryptocurrency mining
The Iranian Economic Commission has recently approved cryptocurrency "mining" as an official branch of industry. This means not only that the extraction of digital currencies has been legalized there, but also that it will be subjected to important regulations.
Electricity in Iran is very cheap - 1 kilowatt hour currently costs 0.05 USD. All thanks to state subsidies. Authorities are concerned that energy-intensive production of cryptocurrencies will disrupt the entire energy grid.
The Financial Tribune reports that one bitcoin extraction consumes as much energy as 24 buildings in Tehran in one year (unfortunately, no details are provided about building size, etc.). Therefore, it was proposed that miners could use a rate of 0.07 USD/kWh similar to the price of energy intended for export. In addition, a system for licensing the import of equipment necessary for crypto production await approval by the government.
Until now Iran was the great place to mine cryptocurrencies due to low electricity prices. It seems that the authorities have also decided to exploit it.
Independent Trader Team