The recent price smash in precious metals is frustrating for goldbugs. It is even more infuriating for those who look at the fundamental reasons to own gold and silver and see prices falling anyway.

That’s why it’s worth explaining once again the real purpose of the futures markets, where prices are set. Some recent revelations about Bitcoin futures will help.

The CME launched a Bitcoin futures contract in December of 2017, and many cryptocurrency fans cheered. Those who cheered expected “institutional” money to pour into Bitcoin. Their mistakes were in assuming the institutions would be making long bets on Bitcoin and the futures market would be free and fair.

At the time, we pointed out why savvy gold investors knew better. They realize that the nation’s most powerful institutions – Wall Street banks and the Federal government – don’t like Bitcoin. This hatred by the establishment is something the cryptocurrency shares with gold.

These institutions have spent more than a century building a crooked financial and currency system which benefits them. The futures market is one tool they use to vigorously defend it.

Despite all the optimism, since futures trading launched in late 2017 the Bitcoin price has fallen by more than half. Almost nobody talks excitedly about the launch of BTC futures market trading anymore.

However, there are still those hoping for a Bitcoin ETF to gain approval. Let them be warned.

For anyone wondering why the price of Bitcoin rocketed downward instead of upward after institutions got access to futures trading, Christopher Giancarlo – the former Commodity Futures Trading Commission Chairman – just provided the explanation.

“One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of Bitcoin futures would have the impact of popping the Bitcoin bubble. And it worked.”

Federal regulators had a purpose when they authorized the launch of futures trading. They wanted to pop the “Bitcoin bubble.”

And the institutions who lined up and took the leveraged short side of all those contracts enjoyed massive profits when the price collapsed.

Investors should never make the mistake of assuming bankers and their friends in Washington have honest intentions, or that they care about free markets.

Thanks to Wikileaks, we know this strategy has been used before. They published some official discussion of the true purpose of futures markets from 1974 – when U.S. officials were planning the launch of leveraged gold trading.

It was a critical time for the U.S. dollar. President Nixon had closed the gold window, removing the last vestige of gold backing for the dollar.

Officials wanted to make the new, purely fiat dollar look stronger and discourage direct ownership of gold.

The following is an excerpt from a memo sent by the Treasury Department in London to the U.S. State Department.

TO THE DEALERS' EXPECTATIONS, WILL BE THE FORMATION OF A SIZABLE GOLD FUTURES MARKET. EACH OF THE DEALERS EXPRESSED THE BELIEF THAT THE FUTURES MARKET WOULD BE OF SIGNIFICANT PROPORTION AND PHYSICAL TRADING WOULD BE MINISCULE BY COMPARISON. ALSO EXPRESSED WAS THE EXPECTATION THAT LARGE VOLUME FUTURES DEALING WOULD CREATE A HIGHLY VOLATILE MARKET. IN TURN, THE VOLATILE PRICE MOVEMENTS WOULD DIMINISH THE INITIAL DEMAND FOR PHYSICAL HOLDING AND MOST LIKELY NEGATE LONG-TERM HOARDING BY U.S. CITIZENS.

Federal politicians and Wall Street bankers have a strategic interest in protecting the U.S. dollar from alternative currencies. Their playbook:

  1. Launch a futures market contract to increase price volatility and discourage direct ownership of the asset.
  2. Turn a blind eye when banks build massive short positions and then rig prices lower, raking in massive profits.

This playbook is how metals investors can make sense of the most recent, totally counter-intuitive, smash in metals prices. It explains, at least in part, how the bullish momentum was crushed.

The futures markets are used by institutions to punish investors for doing the right thing.

That isn’t to suggest investors ought to surrender and be herded by the bankers and bureaucrats into the dollar and other favored assets. But they will need to be prepared for artificial volatility in hard money alternatives.

Don’t forget, these people are definitely not our friends.

Money Metals Exchange and its staff do not act as personal investment advisors for any specific individual. Nor do we advocate the purchase or sale of any regulated security listed on any exchange for any specific individual. Readers and customers should be aware that, although our track record is excellent, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future. You are responsible for your investment decisions, and they should be made in consultation with your own advisors. By purchasing through Money Metals, you understand our company not responsible for any losses caused by your investment decisions, nor do we have any claim to any market gains you may enjoy. This Website is provided “as is,” and Money Metals disclaims all warranties (express or implied) and any and all responsibility or liability for the accuracy, legality, reliability, or availability of any content on the Website.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD turns down as Trump touts trade hopes, after Lagarde's debut

EUR/USD is trading below 1.1130 after President Trump tweeted that the US is getting close to deal with China. Earlier, the ECB left rates unchanged and President Lagarde acknowledged the recent upturn.

EUR/USD News

GBP/USD retreats further from nine-month highs, nears 1.3100

GBP/USD has extended its decline amid renewed EUR demand within ECB’s monetary policy announcement. UK elections weigh as polls show a further narrowing in Conservatives’ advantage.

GBP/USD News

Federal Reserve leaves rates unchanged, is undecided about the future

The Federal Reserve kept interest rates steady and the governors indicated that they expected little change in the economy or Fed policy for the next year.

Read more

Gold soars with ECB, retakes 1,480.00

The bright metal hit a fresh weekly high at 1,483 as dismal US data and ECB’s monetary policy announcement added pressure on a vulnerable dollar. Spot gold at critical Fibonacci resistance.

Gold News

USD/JPY: Greenback jumps to four-day highs as trade tension ease

USD/JPY broke above the 109.00 handle as Trump is upbeat on the trade deal. Resistance is seen at the 109.26 and 109.43 price levels.

USD/JPY News

Forex Majors

Cryptocurrencies

Signatures