Goldman Sachs: What’s in a Name?

It appears that Goldman Sachs is aptly named. Goldman has already been busted by the SEC for its role in an allegedly fraudulent scheme, which involved betting that mortgages would fail. Now, according to a former Goldman trader, big banks involved in precious metals trading have been keeping gold and silver prices down–and are making big profits regardless of the movement of the market.

The whistleblower, Andrew Maguire, was supposed to testify before the Commodities Futures Trade Commission last week, but was kicked off the list at the last minute. It’s usually not a good idea to slight a whistleblower with information this hot, particularly one with 40 years of trading experience in the metal pits, so Maguire went public.

According to Maguire, HSBC engages in illegal naked shorting, in that it short sells shares of gold that do not actually exist. Short selling appears to be rife in the metal trading pits, and it’s not much of a surprise that this is the same risky selling strategy that got Goldman Sachs in trouble with the SEC (and also earned them a lot of money).  The basic goal of short selling is to make money when a security goes down in price.

In short selling, there is obviously an incentive for the trader to work towards keeping the price of a security down. Maguire alleges that this is exactly what another huge bank–J.P. Morgan–does while trading gold and silver. At the same time, J.P. Morgan is insulated from losses by the Federal Reserve. Know who ultimately pays the price? You may have just paid a nice little chunk of it last week on April 15th…

Some people believe that the price of gold and silver would be much higher without the intervention of the big banks and their short selling extravaganza. Indeed, since Maguire’s whistleblowing emails were released, gold has gained 6.5% and silver has gained 10%.

Maguire is just another example of how important it is for industry insiders to come forward and blow the whistle. The aforementioned banks claim to know nothing about short selling precious metals, of course, but there is no denying the effect of Maguire’s revelations on the price of gold and silver. The proof is in the pudding–or the pit!