In times of rising uncertainty, increasing inflation, and market turmoil, such as 2022 so far, investor preferences trend toward certain investments that are perceived as “safe havens” and stores of value. Among the likely recipients of investment dollars are annuities and precious metals. Fixed annuities are thought to hold their value during market pullbacks, and precious metals represent alternative investments that have always been rewarded during uncertainty. How are those asset classes holding up during the past 7 months of volatility?
According to the annuity industry, fixed-rate deferred annuity sales were up sharply in Q1, 2022, then rising again to eclipse the sales record set in the Great Recession. Logic and expectations are proving true in the annuity industry.
Precious metals, including gold and silver, have been bucking expectations. Gold, as tracked by the Exchange-Traded Fund (ETF) IAU, is down 2.72% Year-to-date. Silver, tracked by the counterpart ETF SLV, is down a whopping 13.37% Year-to-date. These results are counter-intuitive, and for many of us, extremely disappointing.
Over decades of education and investing experience, precious metals have been difficult to predict, defying reason more often than not. For years, there have been rumors of market manipulation, and those rumors are now verifiable. Few people know that silver prices are set twice daily by 5 people in London, at 10:30 and 3:00, via conference call. Recently, it is a non-fixed, but agreed-upon, pricing.
Rather than price fixing, gold is manipulated by a few large “bullion banks,” where their traders allegedly use a scheme known as “spoofing.” Huge orders are placed in the market for others to see and react. Before the orders are actually executed, the bulk of the orders are canceled. The remaining (uncanceled) portion is then executed at the market price, which is generally artificially lower or higher, depending on whether the trade is a buy or a sell order. These traders have been alleged to manipulate far more bullion than they control to back up their activity.
Recently, JPMorgan Chase’s (JPM) chickens have come home to roost. Three traders from JPM are on trial for market manipulation. As of this writing, there is not yet a verdict in the racketeering (RICO) trial of Michael Nowak, Gregg Smith, and Jeffrey Ruffo. All were charged with manipulating the markets for precious metals for their own (considerable) benefit, as well as that of their employer, JPMorgan Chase.
How much money did they make? JPM’s profits from their alleged manipulation from 2008 to 2018 ranged from $109 million and $234 Million annually. They also individually reaped incentive-based millions in compensation.
Should you harbor any misconception as to how the bank itself reacted to the 2018 charging of their traders, in 2020 JPM reaped the largest windfall of all, an astounding $1 Billion, from the metals trading desk. A few hedge funds, and certain banks, who were clients of JPM, also benefitted from the trading “success.” None other than George Soros’ hedge fund benefitted from the alleged illegal activity. Market manipulation lives on.
Anyone out there ready for some free-market metals trading? It may be on the way.
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