-- Published: Tuesday, 12 May 2020 | Print | Disqus
By Craig Hemke
The announcement last week that the Bank of Nova Scotia is exiting the precious metals business is just another curious development in the dark, secret world of international bullion banking.
Over the past two months, much has been written about the current stresses in the Bullion Bank Fractional Reserve and Digital Derivative Pricing Scheme. Though the decision by Scotiabank to exit this business was made months ago, the timing of the announcement is certainly interesting. Why? Let's start with a collection of links to review:
With all of this in mind, here's a link from the day the Scotiabank story broke back in late April: https://www.reuters.com/article/us-metals-bank-of-...
So the question becomes: Why would Scotiabank choose to exit the bullion banking business now? What is happening in the global gold market that would cause a company with roots back to the 17th century (due to their acquisition of Mocatta in 1997) to suddenly change course?
Well, first of all, it's very likely that Scotiabank sees the writing on the wall. As with any bank, their first goal is to make money, and in this age of rising costs and low interest rates, making money as a bullion dealer is getting more difficult by the day. And that could be it. A lack of current and future profits could be the sole driving force behind the decision.
But what else might be in play here?
First, consider the stresses in the current fractional reserve system that revealed themselves back in March. The easy money game of "Exchange For Physical" (EFP) abuse was exposed as a sham when non-Bank parties suddenly materialized and expected immediate delivery through this process. The COMEX and its parent CME Group had to scramble to put forth a new delivery contract that provides for fractional ownership of London bars as an alternative. Without this contract, the standard 100-ounce COMEX contract stood at the edge of default and force majeure.
Understanding their own exposure to this con game of mismatched leases, warrants, and promissory notes, did Scotiabank look into the abyss and decide to "flee the Titanic" while there was still room in the lifeboats? Maybe.
And then consider this: At the time the decision to exit the bullion banking business was made, Scotiabank was already under investigation by the U.S. Department of Justice and Commodity Futures Trading Commission for participation in precious metals price rigging and manipulation schemes. See this note from Reuters that was released late last Friday:
From that Reuters article, here is the most important and relevant section:
Recall that these investigations into criminal price rigging by The Bullion Banks have been ongoing since 2015: https://www.wsj.com/articles/big-banks-face-scruti...
And, most recently, as many as eight J.P. Morgan employees have been charged with market manipulation by the U.S. Department of Justice under the RICO statutes. Most notable among these now-former employees is Michael Nowak, one-time head of JPM's precious metals trading division and board member of the LBMA in London.
As noted above, Scotiabank is cooperating with U.S. investigators in the case against J.P. Morgan. Has the bank turned "state's evidence" in the hope of a lesser penalty? In doing so, is part of their pleading process a complete exit of the utterly fraudulent and criminally-infested bullion banking business? Again, maybe so.
In the end, all we can say for certain is that the bullion banking business is rapidly changing as participant banks are left to scurry for cover now that DoJ and BoE investigators are beginning to reveal their nefarious schemes and make arrests. A move toward a more legitimate pricing system is now an eventuality, and you're already seeing signs of this through the ongoing disconnect between paper and physical prices.
And, of course, the lesson here is that any precious metal you hold should always be outside of the reach of the bullion banks. This means no unallocated accounts and certainly no ETFs like the GLD. Only physical metal—gold and silver that you hold in your own two hands or at a trusted storage company—is truly yours. Act now to secure your metal or be prepared to suffer the consequences.
About Sprott Money
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| Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors. |
