Tag: Gold

JPMorgan Holds Bigger Short Positions Than Its Total Assets

Market News Daily - JPMorgan Holds Larger Short Positions Than Its Total Assets.
Market News Daily – JPMorgan Holds Bigger Short Positions Than Its Total Assets.

Dr. Stephen Leeb, one of the world’s top money managers, says that JPMorgan’s gold derivate short positions are so numerous and large that they likely exceed the entirety of the bank’s assets on hand – “which is a very dangerous position in which to be.”

“Should the price of gold ever shoot up from its current price by, say, another $1,000 in the coming weeks or months due to an unexpected “black swan” event, banking giant JPMorgan Chase would more than likely find itself underwater due to the massive gold derivative short positions it currently holds,” says Planet Today.

“What I lose sleep over is how much exposure does a bank like JPMorgan have to the [gold] derivative market,” Leeb is quoted as saying, adding that it is an “open secret” in the gold market that JPMorgan is heavy in gold derivative short positions.

“This is not fraudulent, but it’s an open secret. In fact, it’s no longer a secret because they’ve been penalized so much for it.

They’re trying to control the price of gold.”

When a stock or commodity is short sold, the short seller is on the hook for delivering that stock or commodity at a later date.

The goal is to make a profit between the current price and a future lower price.

In this case, JPMorgan appears to be selling the precious metal short using derivatives, which is effectively keeping the price of gold artificially low, says Planet Today. In such uncertain financial environments, many investors choose to buy gold and silver as a hedge against market manipulation and potential financial instability.

Ex-JPMorgan Gold Trader Faces 30 Years for Spoofing

Market News Daily - JPMorgan Holds Bigger Short Positions Than Its Total Assets.
Market News Daily – JPMorgan Holds Bigger Short Positions Than Its Total Assets.

An Ex-JPMorgan Gold trader was found guilty of fraud in the commodities market.

Christopher Jordan was convicted of wire fraud affecting a financial institution by a federal judge in Chicago, the latest win for U.S prosecutors in their crackdown of on illegal “spoofing” trades and market manipulation.

Between 2008 and 2010, Jordan placed thousands of spoof orders, i.e., orders that he intended to cancel before execution, to drive prices in a direction more favorable to orders he intended to execute on the opposite side of the market. 

Jordan engaged in this deceptive spoofing strategy while trading gold and silver futures contracts on the Commodity Exchange (COMEX), which is a commodities exchange operated by the CME Group.

These deceptive orders were intended to inject false and misleading information about the genuine supply and demand for gold and silver futures contracts into the markets.

He is scheduled to be sentenced at a later date and faces a maximum penalty of 30 years in prison. 

Four other former JPMorgan precious metals traders were previously convicted in related cases.

JPMorgan Short Positions Fraud

In August 2022, Gregg Smith and Michael Nowak were convicted after trial in the Northern District of Illinois of wire fraud affecting a financial institution, commodities fraud, attempted price manipulation, and spoofing.

In September 2020, JPMorgan admitted to committing wire fraud in connection with (1) unlawful trading in the markets for precious metals futures contracts and (2) unlawful trading in the markets for U.S. Treasury futures contracts and in the secondary (cash) market for U.S. Treasury notes and bonds.

JPMorgan entered into a three-year deferred prosecution agreement pursuant to which it paid more than $920 million in criminal monetary penalties, criminal disgorgement, and victim compensation, with parallel resolutions by the Commodity Futures Trading Commission and the Securities Exchange Commission announced on the same day.

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Market News Today - JPMorgan Holds Bigger Short Positions Than Its Total Assets.
Market News Today – JPMorgan Holds Bigger Short Positions Than Its Total Assets.

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Ex-JPMorgan Gold Trader Faces 30 Years in Prison for Spoofing

Market News: Ex-JPMorgan Gold Trader faces time in prison after spoofing the market.
Market News: Ex-JPMorgan Gold Trader faces time in prison after spoofing the market.

An Ex-JPMorgan Gold trader was found guilty of fraud in the commodities market.

Christopher Jordan was convicted of wire fraud affecting a financial institution by a federal judge in Chicago, the latest win for U.S prosecutors in their crackdown on illegal “spoofing” trades and market manipulation.

Jordan was found guilty Friday after a four-day trial in the same courthouse where two of his most senior colleagues on the JPMorgan precious metals desk were convicted in August of spoofing related charges for deceptive buy and sell orders.

Jordan worked at JPMorgan from 2006 to late 2009.

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Department of Justice Comments on JPMorgan Trader

DOJ report on Ex-JPMorgan Trader spoofing the gold market.
DOJ report on Ex-JPMorgan Trader spoofing the gold market.

Between 2008 and 2010, Jordan placed thousands of spoof orders, i.e., orders that he intended to cancel before execution, to drive prices in a direction more favorable to orders he intended to execute on the opposite side of the market. 

Jordan engaged in this deceptive spoofing strategy while trading gold and silver futures contracts on the Commodity Exchange (COMEX), which is a commodities exchange operated by the CME Group.

These deceptive orders were intended to inject false and misleading information about the genuine supply and demand for gold and silver futures contracts into the markets.

He is scheduled to be sentenced at a later date and faces a maximum penalty of 30 years in prison. 

Four other former JPMorgan precious metals traders were previously convicted in related cases.

In August 2022, Gregg Smith and Michael Nowak were convicted after trial in the Northern District of Illinois of wire fraud affecting a financial institution, commodities fraud, attempted price manipulation, and spoofing.

In September 2020, JPMorgan admitted to committing wire fraud in connection with (1) unlawful trading in the markets for precious metals futures contracts and (2) unlawful trading in the markets for U.S. Treasury futures contracts and in the secondary (cash) market for U.S. Treasury notes and bonds.

JPMorgan entered into a three-year deferred prosecution agreement pursuant to which it paid more than $920 million in criminal monetary penalties, criminal disgorgement, and victim compensation, with parallel resolutions by the Commodity Futures Trading Commission and the Securities Exchange Commission announced on the same day.

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Source(s): Bloomberg, Justice.Gov.


Investing in Commodities: An Easy Introduction

Investing in Commodities
Everything you need to know about investing in commodities

Published by FrankNez Team.

Commodities trading goes back further in history than trading stocks and bonds.

Commodities are simply goods that can be exchanged for money or other goods.

In other words, they are the heart of the market – the stuff that gets bought and sold.

The commodities market runs on the basic principle of supply and demand.

Since prices of a given type of commodity fluctuate in response to market forces – including anything from natural disasters to the COVID-19 pandemic – commodities can be a riskier investment option than stocks unless you have enough expertise and resources, making it a historically more prohibitive investment option for individuals.

Keep reading to learn more about investing in commodities and your options for getting started.

Commodities Trading Basics

Commodity Market
Commodity Market – what is commodities trading?

What is commodities trading?

Commodities trading refers to the practice of buying and selling goods at agreed upon prices.

A commodities exchange may refer to the exchange of the goods themselves, or to regulatory bodies that facilitate commodities exchanges through the enforcement of contractual and legal rules, such as:

Who engages in commodities investment?

Historically, commodities trading has been reserved for commercial or institutional producers or consumers.

Think farm owners selling crops or airlines buying jet fuel.

Other commercial or institutional investors may not be involved in the direct production or consumption of goods but look to investment in commodities as a way to diversify their portfolios or hedge against the volatility of other investments, such as stocks.

In fact, because commodities and stocks tend to have an inverse relationship, many investors will put money in commodities like gold during bear markets, periods of high stock market volatility, or times of high inflation.

Finally, individual investors can also profit on commodities through speculation.

Because speculating on commodity prices requires a high level of expertise across many fields – including macroeconomics, microeconomics, and the specifics of a given industry and commodity – this can be an expensive and risky investment option for individuals.

What are the risks of commodities investment?

It’s important to note that commodities investment comes in many forms with different levels of risk.

By far the riskiest options for individual investors are direct investment and futures contracts, which will be explained later in this article.

However, all commodities trading is subject to the effects of market forces on supply and demand, and thus the effects of supply and demand on commodity prices.

One major risk of direct commodities trading is that small price fluctuations can amplify your gains or losses exponentially, meaning that you could gain significantly more than you invested – but you can also lose much more too.

The Commodity Futures Trading Commission – a regulatory body that registers commodities trading professionals, among other things – warns that “many individuals lose all of their money” in futures markets.

Types of Commodities

different types of commodities
Different types of commodities

Commodities are divided into the following four categories:

1. Metals

Metals include gold, copper, palladium, etc.

As mentioned, gold and silver are popular investments for those hedging against losses due to stock market volatility.

According to the CFTC, metals are typically most impacted by industrial and macroeconomic factors.

2. Energy

This category includes a broad range of natural resources, including natural gas.

Risk factors usually relate to supply and storage availability, or actions made by regulatory bodies like the Organization of Petroleum Exporting Countries (OPEC).

3. Livestock and Meat & 4. Agriculture

Both livestock/meat and agriculture are typically affected by weather patterns, but can also be affected by natural disasters, epidemics and pandemics (human and animal), or other global supply chain issues.

Options for Investing in Commodities

Futures Contracts

A futures contract is a contract in which one party agrees to purchase and receive a given commodity at a certain price and at a certain time.

For example, a developer might agree to buy lumber at a certain price for a certain number of months.

If the market price falls below the contract price before the contract is up, the developer will lose money.

But if prices rise beyond the agreed upon price, the developer is locked into the better deal.

Futures trading – or the buying and selling of futures contracts – is the most common way to directly invest in commodities.

It’s also expensive and can be risky.

As mentioned, it is typically reserved for commercial or institutional investors who need to be sure they can buy the goods necessary for the operation of their businesses at prices that are protected from volatility in the market.

Otherwise, futures trading is done by large organizations or individuals to profit on price fluctuations or hedge against other investments.

Futures trading usually requires a brokerage account (which will charge brokerage fees), as well as deposits for the commodity investments themselves.

Sometimes investors even receive a “margin call” from their broker requiring them to deposit more money than what they initially paid.

With some exceptions, commodity futures and options must be traded through an exchange by professionals or firms who are registered with the CFTC.

As you can see, futures trading can be prohibitive to individual investors and should be approached with caution.

Stocks

Stocks can be an alternative option for investing in commodities.

With this strategy, an investor buys stocks in a company that deals with the commodity they’re interested in.

However, this is fundamentally different from investing directly in the commodity.

With futures contracts, an investor is directly purchasing ownership of the commodities themselves, while with stocks an investor is simply buying a share of an entity that deals with the commodity.

As Investopedia points out, stocks are affected by different factors than commodity prices, including internal company factors that have nothing to do with the macroeconomic factors impacting the commodities in question.

ENTs, ETPs, ETFs and Mutual Funds

Like stocks, ENTs, ETPs, ETFs and mutual funds can be less volatile investment options than direct commodities trading.

These options come with risks similar to those of stocks, but also similar advantages: good money management (if you’re using a broker), diversification opportunities, and the ability to make a profit on commodities without losing lots of money on speculation.

Commodity Pooling

Sometimes, a group of investors will pool their investment and go in on a futures contract together.

This type of arrangement is typically facilitated by a professional commodity pool operator (CPO), who will hire a commodities trading adviser (CTA) registered by the CFTC.

Pooling resources can offer the advantage of lower upfront investments from all parties, and the CTA helps make money management easier.

What to Consider Before Investing in Commodities

The CFTC suggests that investors consider the following before investing in commodities:

  • Your financial experience, goals and financial resources
  • How much you can afford to lose (beyond your initial investment)
  • All of the obligations of your contract(s)
  • The risk disclosure documents the broker is required to provide
  • Whom to contact with problems or questions

As with any prospective investment, do your research carefully and thoroughly before making any purchase, and take a look at some of the resources available from the CFTC.

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