Shore Collectibles
By Douglas Keefe
I’ve always been concerned that there exists a certain amount of manipulation in the metals markets done to benefit certain individuals or companies. Silver has been of particular concern because of its’ low price relative to gold and other precious metals, thus requiring a smaller investment to affect the market price. That, plus the fact it is more of a “local” metal verses gold and the others which have more of an international following by virtue of central banks of some countries adding to their gold reserves to bolster the value or offset the depreciation of their currency. An example being Russia, who, when sanctions were imposed against them after their military action against the Ukraine, they converted a large number of rubles into gold to offset the rubles’ depreciation.
My first experience with metal manipulation occurred in 1980 during the first gold and silver rush. Although not manipulation in the true sense, it did result in a dramatic rise in the value of silver. The Hunt brothers, 2 rich Texas oilmen, decided to corner the silver market by buying all physical silver, which as time went on and the available physical silver supply declined, caused the price to rise. Their reason for buying all physical silver was that when contracts on the commodities exchange came due, and the owners of the contracts wanted silver, the Hunt brothers could set their price because they owned all the silver. That played out well for a while, driving silver prices to $49 an ounce, but then the government, slow to see what was happening, stopped the Hunt brothers from buying more silver by passing a law that only silver sales could take place, not purchases, causing the price of silver to plummet. That law was eventually repealed, allowing normal market activity to resume and the Hunt brothers went into bankruptcy.
As I said, I have always been concerned about someone having the ability to manipulate the market, and silver has been the metal I was most concerned about. I guess I underestimated the extent others would go and the resources available because J.P Morgan, that huge banking concern has just paid a fine of $920 million imposed by the Justice Department to settle a suit that their employees engaged in an activity known as “spoofing”. Spoofing has been illegal since the Dodd-Frank Act which was written in response the Financial Crisis of 2008. Evidently the metal traders at J. P. Morgan didn’t get the memo.
Spoofing is defined as when someone, in this case metal traders employed by J.P. Morgan, would place large and continuing buy orders, which would drive the prices up, or corresponding large sell orders, which would drive the prices down. It seems they did this with all, gold, silver, platinum, and palladium. Spoofing is, that although these buy and sell orders were generated, the traders had no intention of completing them. No investment required. But when the prices rose, they would do an actual sale, and hence profiting from an increase, and when prices fell, they would purchase at artificially low prices.
Evidently this practice has been going on for at least 8 years and has involved 15 J.P. Morgan traders. The difficulty faced by regulators has been the volume of data involved in tracing the illegal activity, but recent developments in data analysis and spurred by claims of investors who lost money thinking they were following a market trend when in fact they were betting against a stacked deck. It is estimated investors lost over $300 million because of the activities of these traders. And civil suits are sure to follow the admission by J. P. Morgan that their traders were involved in spoofing.
It seems my concern about silver being susceptible to manipulation was a little conservative, since all of the metals prices were manipulated by these traders, but I think investors can be confident as we go forward, the Justice Department now has the tools to ferret out manipulation.
Douglas Keefe is the President of Beachcomber Coins, Inc. He and his wife Linda operate Beachcomber Coins and Collectibles, formally located in the Shore Mall and now located at 6692 Black Horse Pike, Egg Harbor Township in the old Wawa building. They also have satellite offices for buying only in Brigantine (Saturday), and in Absecon (Tuesday). Between them, they have over 70 years of experience buying and selling coins, collectibles in precious metals. They are members of the American Numismatic Association, the Industry Council of Tangible Assets, the Numismatic Guarantee Corporation, the Certified Coin Exchange and the Professional Coin Grading Service. Visit their website at www.beachcombercoinsinc.com for video and information.
