Wednesday, September 12, 2018

Banks swap mortgage securities for gold and silver derivatives as increased exposure to paper metals a big part of price suppression since 2008 crisis

There was a huge lesson learned by the Federal Reserve both in 1980 and again following the 2008 financial crisis, and that was that unless the central bank focused on artificially manipulating both the price and sentiment of gold and silver, individuals and investors would rush into the metals at the first signs of a financial disaster.

In 1980 it was through the use of interest rates that helped deflate the gold and silver bubble which had seen the price of the metals reach $840 and $48 respectively.  But in 2011 at the tail end of the Great Recession and when the dollar appeared on the ropes at just 72 on the dollar index, raising interest were out of the question so the newest scheme the commercial banks embarked upon was the saturation of the gold and silver derivative paper markets to crush the price.

And thus seven years later the price of gold remains suppressed at just 60% of its 2011 all-time high, and silver is down even more to a whopping 72% from its apex.

On Sept. 12, the Gold Anti-Trust Action Committee (GATA) produced a report in which they found that the amount of paper gold and silver derivatives held by commercial banks and even savings associations has skyrocketed over the past 17 years from $2.5 billion to well over $50 billion here in 2018.  And where in 2007-08 banks held a large portion of their derivatives in mortgaged backed securities tied to the Housing Bubble, the rise in metals derivatives held by these banks is nearly on an equal par since the gold and silver markets are vastly smaller than the housing and real estate sector.

The quarterly report from the U.S. Office of the Comptroller of the Currency showing bank trading revenue, published today and called to GATA’s attention by our friend J.H., contains a remarkable graph showing the increase in the notional value of precious metals derivatives held by “U.S. commercial banks and savings associations” quarter by quarter since 2001. 
These derivatives, according to the chart, have increased from about $2.5 billion at the end of 2001 to nearly $50 billion in the quarter ended in July this year.
Perhaps not coincidentally, the value of the precious metals derivatives jumps markedly in 2010 just before the seven-year smashing of monetary metals prices that began in 2011. – Silver Doctors

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