The Safety of Physical Gold Relative to Futures

“That does show u how easy it is to manipulate it,” bragged Deutsche Bank futures trader Edward Bases after bidding to buy 2,740 gold futures contracts, worth $244 million, and then canceling virtually all of his orders, an illegal practice known as “spoofing.”

Bases’ boast about market manipulation in a chat message to a fellow employee at Deutsche Bank was part of the incriminating evidence that led a jury in Chicago to find Bases and fellow trader John Pacilio guilty of federal fraud charges for spoofing the precious metals futures market. Bases’ bids temporarily drove up gold futures prices, allowing a colleague of his to unload $15 million of gold contracts at a profit.

“I f..k the mkt around a lot,” Bases wrote in another chat message.

Market manipulation by professional traders is an unfortunate fact of life in the futures market. Two other Deutsche Bank futures traders are serving a year in prison after their conviction on spoofing charges. J.P Morgan Chase, the nation’s largest bank, last year settled charges that it engaged in hundreds of thousands of illegal spoof orders for precious metals and U.S. Treasury futures contracts over the course of at least eight years. The giant bank paid a record $920 million to settle the Commodity Futures Trading Commission charges. And The Bank of Nova Scotia paid $77 million to settle CFTC spoofing charges last year involving manipulation of gold and silver futures prices.

As opposed to the futures market, spoofing is not possible in the market for physical gold where no one bids for a contract of gold at some point in the future. Buyers pay a set price per ounce to a reliable, trustworthy dealer, who then delivers genuine physical gold. Financial derivatives simply cannot match the safety and security of real gold.