Federal Reserve to Restrict Wall Street Commodity Trading?

20 Jan

Wall Street Bankers [courtesy Google Images]

Wall Street Bankers
[courtesy Google Images]

Reuters recently published an article entitled “Worried Fed seeks to curb Wall Street banks commodity trade”.  The article didn’t attract much mainstream attention, but its implications strike me as big news.

According to Reuters,

“The US Federal Reserve on Tuesday took a first formal step toward restricting the role of Wall Street banks in trading physical commodities, citing fears that a multibillion-dollar disaster could bring down a bank and imperil the stability of the financial system.”


Given the Fed’s need to maintain public confidence in the markets, the economy and the fiat dollar, it seems improbable that the Fed would publicly warn of a potential “multibillion-dollar disaster” unless the probability of such imminent disaster were too high to ignore or conceal.


“The Fed board voted to publish its concerns and potential remedies following months of growing public and political pressure to check [Wall Street] banks’ decade-long expansion into the commodities supply chain. . . .

“The Fed ‘expect(s) to engage in additional rulemaking in this area,’ according to prepared remarks of Michael Gibson, the Fed’s director of bank supervision and regulation, to a US Senate banking committee hearing on Wednesday.

“The new rules could include a cap on total assets or revenues from such trading, increased capital or insurance, or prohibitions on holding certain types of commodities ‘that pose undue risk.’”

First, I (again) presume that the Fed would not publicize their concerns or seek to change the rules for banks investing in physical commodities unless the Fed perceived a serious and imminent risk of a “multibillion-dollar disaster”.

Second, the Fed will take public comments on its proposal to regulate bank investment in commodities until March 15th.  Thus, the Fed’s new rules on banks investing in physical commodities won’t go into effect until sometime after March 15th.  That implies that the Fed does not anticipate a serious financial breakdown in the 1st quarter of this year.  Second quarter is possible, third or fourth quarters are more likely.

Third, although the Fed report implies that its major concern is crude oil, it’s easy to suppose that the Fed’s real concerns over a physical commodity that poses an “undue risk” to the financial system may be focused on gold.

Has there been any evidence that the Federal Reserve and Powers That Be have actively and aggressively suppressed the price of crude oil for the past decade?  Not much.

On the other hand, there’s been enormous evidence that the Fed and PTB have actively manipulated and suppressed the price of gold over the past decade.   Clearly, the PTB regard have viewed gold as a major threat to the fiat dollar and US financial system for several decades.

The implication is obvious:  the financial system is far more threatened by gold than by crude oil.  If so, it follows that the primary target for the Fed’s new rules for restricting Wall Street bank investments in physical commodities should be gold rather than crude oil.

If the Fed knows that the London and Comex gold vaults (and even those of the Federal Reserve and US government) are about out of physical gold, then the Fed might see an “undue risk” for Wall Street banks that’ve been selling paper gold but which may soon be unable to deliver physical gold to investors.

If it becomes apparent that the US and London gold markets have nothing in their inventory but paper gold certificates, the price of physical gold should increase dramatically and the value of paper dollars should plunge.  The resulting price chaos could threaten the solvency of the banks and gold markets and precipitate a “multi-billion dollar disaster”.

Fourth, for the past 20 years, Wall Street banks have traded primarily in paper gold commodity markets in which they promised to deliver physical gold but rarely had to do so.  It’s by means of trading in paper gold, that Wall Street has been able to suppress the price of physical gold.

Insofar as the Fed’s forthcoming rules restrict Wall Street banks from further investments in the gold commodity markets, those new rules may slow or even stop Wall Street’s ability to manipulate the price of physical gold.  Once the price the price of physical gold is no longer manipulated by Wall Street banks, that price should soar.

If the Fed imposes new rules at the end of March that restrict Wall Street banks’ ability to trade in and manipulate the gold markets, the price of gold could start to rise dramatically as soon as second quarter of this year.


Tags: , ,

2 responses to “Federal Reserve to Restrict Wall Street Commodity Trading?

  1. Yartap

    January 20, 2014 at 6:11 PM

    Once it is discovered that the Goldsmith’s vaults are empty, the paper gold becomes just another fiat currency, not backed by gov-co.; which must be inflated over and over to keep ahead of the curve. The problem: What will the holders of paper gold want when they cash out, so to speak? Will holders of paper gold accept more paper gold in exchange? Only if the price of gold rises.

  2. Buck

    January 20, 2014 at 9:45 PM

    Al, as always, what a great observation to the Fed’s move that will go over most heads out there. 2nd quarter of ’14 is the one to watch. Hopefully investors who plan to hedge up against inflation by purchasing actual gold assets will have done so before then.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s