Why the Banks Won't Let Metals Bulls Win
Updated
Metal bulls aren't well versed on the history of metal spoofing and the reason they do it, vault insurance limits. Allow me to educate you.
justice.gov/opa/pr/former-jp-morgan-traders-convicted-fraud-attempted-price-manipulation-and-spoofing-multi-year
Every major metals bank has been convicted, but they all got slaps on the wrist. JPM for example, got less than a billion dollar fine for over 12yrs of metal spoofing. That amounted to less than 3% of their profits for the previous year. One guy goes to jail from each metals desk. Business continues as usual, because the stakes are too high!
It all started during the last wild metals run after 2008. Why on Earth would they manipulate the price of their own assets DOWN!?!? Because of Vault Insurance limits....
bloomberg.com/news/articles/2020-09-05/gold-gets-trickier-to-insure-as-it-reaches-record-prices?leadSource=uverify wall
With dozens of insurers underwriting, the maximum amount of insurance you can get on one vault is around 2 billion dollars, which is now only ~1000 ozt of Gold. Not to mention the other metals crowding the basket of metals they have in the vault, with expensive platinum group metals and rare earths.
So every time the prices of metals double, they are forced to either:
Neither of these options is feasible. It is the ultimate squeeze on banks, their Achille's heel. It's a widely know secret, that's why Metal spoofing is allowed to continue. If the banks sell most of their metals to the public, they're left with mostly junk bonds and overpriced real estate as collateral. Only the biggest Wall Street banks could/would survive it, if Gold suddenly doubled or quadrupled in price again.
Mints and bullion dealers are also constrained by the insurance limits; and they attempt to control it in tandem with banks by jacking up premiums disproportionately, when prices near range highs, like now.
You think they stopped? Then what happened to Nickel in March of 2022? When prices jumped 100% rapidly, they halted the market and refused to honor any calls! Business carried on as usual. reuters.com/business/lme-suspends-nickel-trading-day-after-prices-see-record-run-2022-03-08/
You see these banks also have a vested interest in keeping input costs low for the companies they loan money to, and invest in on the stock market. So this phenomenon is readily apparent in industrial metals. Everything gets rangebound. When it's appropriate for the banks they will decide when to lift the range, but I doubt it's happening any time soon, if the nickel market is anything to go by.
justice.gov/opa/pr/former-jp-morgan-traders-convicted-fraud-attempted-price-manipulation-and-spoofing-multi-year
Every major metals bank has been convicted, but they all got slaps on the wrist. JPM for example, got less than a billion dollar fine for over 12yrs of metal spoofing. That amounted to less than 3% of their profits for the previous year. One guy goes to jail from each metals desk. Business continues as usual, because the stakes are too high!
It all started during the last wild metals run after 2008. Why on Earth would they manipulate the price of their own assets DOWN!?!? Because of Vault Insurance limits....
bloomberg.com/news/articles/2020-09-05/gold-gets-trickier-to-insure-as-it-reaches-record-prices?leadSource=uverify wall
With dozens of insurers underwriting, the maximum amount of insurance you can get on one vault is around 2 billion dollars, which is now only ~1000 ozt of Gold. Not to mention the other metals crowding the basket of metals they have in the vault, with expensive platinum group metals and rare earths.
So every time the prices of metals double, they are forced to either:
- Sell off half of their most valuable collateral assets and cripple themselves as a bank
- Buy, build, staff and insure twice as many vaults, small banks and transfer stations.
Neither of these options is feasible. It is the ultimate squeeze on banks, their Achille's heel. It's a widely know secret, that's why Metal spoofing is allowed to continue. If the banks sell most of their metals to the public, they're left with mostly junk bonds and overpriced real estate as collateral. Only the biggest Wall Street banks could/would survive it, if Gold suddenly doubled or quadrupled in price again.
Mints and bullion dealers are also constrained by the insurance limits; and they attempt to control it in tandem with banks by jacking up premiums disproportionately, when prices near range highs, like now.
You think they stopped? Then what happened to Nickel in March of 2022? When prices jumped 100% rapidly, they halted the market and refused to honor any calls! Business carried on as usual. reuters.com/business/lme-suspends-nickel-trading-day-after-prices-see-record-run-2022-03-08/
You see these banks also have a vested interest in keeping input costs low for the companies they loan money to, and invest in on the stock market. So this phenomenon is readily apparent in industrial metals. Everything gets rangebound. When it's appropriate for the banks they will decide when to lift the range, but I doubt it's happening any time soon, if the nickel market is anything to go by.
Note
For Nickel, it seems they just carved out a 1k-2k range to play for years to come 
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