The importance of physical gold in the face of geopolitical context and futures market scandals

Inflation figures in the United States eased slightly this month. According to most investors, the peak of inflation is behind us. At an annual rate of 8.5%, some observers are even starting to think about cutting interest rates by the end of the year, with inflation now less important than an impending recession.

When we look at the figures in detail, this decline is mainly due to petrol prices, which have been falling for weeks. That said, food prices continued to rise, especially eggs with a +4.9% increase in the month. Revenues related to medical expenses increased by +2.2%. Electricity prices have also risen sharply, which does not bode well for a possible sharp fall in CPI over the next few months. Falling gasoline and normal home price calculations managed to prevent essential price increases. Enough to declare the market victory: defeat inflation in the United States!

For the Fed, the urgent problem now is the economic downturn. Good unemployment figures mask the alarming decline in jobs created over the past three months:

New home prices have fallen from recent peaks.

The rate of decline is similar to that of the real estate crisis of 2007-2008, which triggered the Great Financial Crisis.

It is likely that the Fed has these indicators in view and is now focusing less on inflation In any case, this is what the market is expecting…

In Europe, it’s a completely different story… inflation is still on the menu.

At the beginning of August, we are witnessing a surge in electricity prices across Europe, with futures getting higher every day:

Inflation has not yet arrived as a result of the rise in electricity prices. The ECB still has its work cut out for it to contain a price explosion that threatens Europe with significant stagnation in the coming months.

U.S. inflation figures weighed on the dollar, breaking the upward cycle that began earlier in the year. We are testifying at the beginning of the week a breakdown American currency, to be confirmed at the next session.

Gold prices are regaining color and continuing the rebound that began at the beginning of the summer. The yellow metal is headed for resistance at $1,800:

This week, gold news is still driven by repeated scandals in the futures market.

Last week, I returned to the topic in my monthly newsletter exclusive to Or.fr subscribers, part of which is here:

“The month of July was punctuated by the sensational revelations of the case against former JP Morgan traders, who are accused of manipulating the gold market for 10 years. spoofing In futures (or forward contracts): the bank’s trading cell enters wide positions and withdraws them at the last minute to control the market.

To start this operation from spoofingGreg Smith, one of the traders involved, moved from Bear Stern to JP Morgan, clicked his computer mouse so frantically that his colleagues suggested putting ice on his fingers to relieve it!

Another trader, Christian Trunz, who pleaded guilty and agreed to cooperate with the law, claimed that these illegal operations were part of a well-oiled strategy from the desk, implemented by the entire trading team. He explained that his supervisor had trained him to lie to compliance officers to hide the manipulation. This same superior advised him not to plead guilty, stating that the orders given were intended to be carried out. Second lie, this time to the regulatory authorities.

This revelation has a bomb effect in a market precisely dominated by the bank JP Morgan. In 2010, at the time of the indictment, about half of the clearing (clearing) of gold futures contracts was conducted by American banks. JP Morgan is also heavily represented on the boards of associations of market participants such as the LBMA, which conducts most of the world’s gold trading from London.

Despite these serious revelations, nothing suggests that Bank of America’s place within the precious metals market will change in the short term.

Such a powerful bank has been accused of manipulating gold for so long, without being excluded from trading today or losing the high places it occupies, creating a serious problem for the metal’s market structure. Precious.”

After JP Morgan, we learned this week that another participant in the futures market has been blamed. This is Daniel Shaq, a well-known poker player on the international circuit. Just like JP Morgan traders, Daniel Shaq used his strategy spoofing To manipulate the market. Poker players were thus able to artificially hold positions representing a very large portion of open positions in futures, with no regulatory body overseeing this financial embezzlement. The futures market has become a real casino (logically capable of attracting poker players!) As a reminder, the primary role of these markets was to allow producers to sell their production forward to protect themselves against price fluctuations.

Two JP Morgan traders convicted of manipulating gold prices

➤ https://t.co/QcdmWHmj1i#handling # Gold #JP Morgan pic.twitter.com/XaK0Oyr4BI

— Or.fr (@Or_fr_) August 12, 2022

In this context, it is logical to see the emergence of initiatives aimed at establishing competitive markets that better respond to supply and demand. after Russia And new initiatives in India, Asia should see the light of day soon. The way gold is priced may change radically in the coming years. The importance of physical metals is returning to the agenda in the face of imbalances created by the new geopolitical context and difficulties associated with securing supplies.

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