Not abstract numbers

Commodity prices are not abstract numbers pulled out of thin air, but rather a very important factor that profoundly affects all aspects of our lives.

Therefore, when we learn that the commodity price index is climbing, we should not just dismiss that, blaming it on trouble in the Middle East or poor harvest conditions in Brazil, but instead recognize the implications of this turn of events.

Commodity prices are not numbers for buyers and sellers on a particular commodity, not simply the physical stuff. They are notably the basis of derivative markets, which as the The Economist has so clearly stated, “futures contracts, options, and combinations of these and other financial instruments which can be far larger.”

A change in the quoted price can entail a big move in the value of the underlying assets and also for those able to capitalize on that.

Increasingly many should be troubled by the way the markets work. Gold markets are a target of those who complain about the way that prices are decided. It has become apparent to many observers that the gold markets, among other commodities, all are contrived; collusion abounds.

A New York investor in the gold and derivative markets is suing the five banks that regulate the price: Deutsche, Barclays, Socitete Generale, Nova Scotia, and HSBC, in a class action lawsuit for manipulation of the price of gold.

Then Rosa Abrantes-Metz of New York University’s Stern School of Business has reported a strange number or downward price of movements just prior to the afternoon gold price “fix”. That took place usually ten minutes before the banks involved in determining the price exchanged information and plans on the price to be announced.

That author has stated that the violent price moves have been “too frequent and too large to be mere chance.” Incidentally, Barclays has just been penalized for their devious roles in setting the gold price.

This columnist has noted that when gold prices appear to be on a strong upward move, for some mysterious reason a big sell order appeared. Then Goldman Sachs issues a gratuitous press release predicting that the price of gold will decline significantly. That firm shorted gold, in other words sold it, hoping to repurchase its position at a lower gold price. Similarly this chain of events takes place with other commodities too. By manipulating commodity prices, authorities try to mask the true inflationary situation.

While operations in the commodity business claim that their methodology is efficient and honest, objective reporters disagree.

Honesty seems all but forgotten. Corruption in financial markets is outrageous and should be investigated and outlawed.

 

 

Bruce Whitestone

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