There’s been a lot of questions in recent years concerning the integrity of the US gold futures market. We’re talking about the paper market; gold derivatives. This market falls under the regulatory jurisdiction of the US Commodity Futures Trading Commission (CFTC), a federal agency.
As with all futures markets in the US, the CFTC’s job is to ensure that the commodities markets and their investors are protected from manipulative or abusive practices that may damage the integrity of the market process. To do this, the agency conducts regular audits to ensure that all futures transactions take place in accordance with Federal laws.
But recently--and perhaps because of the persistent questioning by the Gold Anti-Trust Action Committee (GATA), an independent regulatory agency, and U.S. Rep. Alex Mooney, R-West Virginia--there’s been growing suspicion that the CFTC’s regulatory compliance ends with the derivatives themselves, leaving the actual spot commodities suspended in an unaudited, and hence unregulated space.
Earlier this month, GATA sent a letter to the CFTC, asking if the agency has ever audited the physical gold stored in the vaults of the New York Commodities Exchange; gold linked to futures contracts traded through CFTC-regulated exchanges. The recent turmoil in both the US and UK gold markets raised strong concerns about the COMEX gold stores, and GATA was hoping that the CFTC’s response might have assuaged those fears.
Their letter asked a few basic questions:
- “Has your commission ever audited the gold kept in Comex-approved vaults and reported to the commission as registered or eligible for sale and delivery?
- “If such audits have been conducted, when and what did they find?
- “Who conducted these audits?
- “Were these audits ever made public? If so, when and how? May we see them?
- “Are future audits planned? If so, when and who will conduct them?"
To date, there’s been no response from the CFTC. It isn’t the first time either. GATA has been asking similar questions for years, and each time the CFTC has refused to acknowledge the questions. Even when US Rep Alex Mooney--himself, a staunch “sound money” advocate--prodded the agency with questions concerning the accountability of physical gold stores linked to futures trading, the CFTC had managed to evade the questioning.
Adding to suspicions, the CFTC has also evaded questions as to whether they are aware of any gold futures trading on behalf of governments, and if such trading might involve market manipulation. Despite the agency’s refusal to answer, discounts provided to governments are well known (you just have to look at the CME Group’s CFTC filings).
Institutional manipulation in the physical precious metals markets is nothing new. For instance, take JPMorgan, a company we’ve been covering over the last few years. Is it possible that there are more players manipulating the gold and silver market besides those who have been caught?
Of course, we can never know with any degree of certainty unless the physical gold and silver stores in the COMEX vault are audited and accounted for. That’s why the CFTC’s evasion of these critical questions is concerning. You don’t know whether they’re just refusing to answer the questions, whether they’re not auditing their physical metals, or, the most disturbing scenario of them all, if somehow they themselves are complicit in the manipulation of gold and silver prices.