Metals Scandal And Chinese Weakness Could Keep Traders Away From Markets

Metals Scandal And Chinese Weakness Could Keep Traders Away From Markets
Metals Scandal And Chinese Weakness Could Keep Traders Away From Markets
Industrial metals prices slid to their weakest in nearly three weeks yesterday as expectations of weak manufacturing data from top consumer China dimmed prospects for growth in metals demand. As the banking scandal grows, traders seem to be backing away from the metals markets. Wall Street banks face the prospect of increased scrutiny of their commodity businesses as U.S. regulators and lawmakers on Tuesday pressed for a closer look at their roles in owning warehouses and in trading everything from oil to metals. Pressure on U.S. futures regulators to launch an official probe of the aluminum market mounted on Tuesday, when the head of the Senate Agriculture Committee asked the Commodity Futures Trading Commission to review alleged manipulation. Just yesterday financial services giant JPMorgan Chase & Co. agreed to pay $410 million in penalties and disgorgement to settle allegations that it manipulated electricity markets in California and the Midwest from September 2010 through November 2012, the U.S. Federal Energy Regulatory Commission or FERC said Tuesday.

JPMorgan said last Friday that it was exploring strategic alternatives for its physical commodities business, amid increased political and regulatory scrutiny of these businesses. The company said it has concluded an internal review and will explore options, including a sale, spin off or strategic partnership of the business.

JPMorgan’s physical commodities business includes the Henry Bath metals warehousing subsidiary, stakes in power plants, and traders in commodities such as gas, power, precious metals and coal. The bank forayed into the business in 2008 through its acquisition of Bear Stearns during the financial crisis. The company further expanded into the business by acquiring RBS Sempra Commodities in 2010.

The Federal Reserve reportedly said on July 19 that it will review a landmark decade-old decision that allowed banks to trade in physical commodities to complement their financial activity, which enabled banks including JPMorgan and Citigroup Inc. to expand into the business according to an article on NASDAQ.

The dollar is set to close out a monthly loss against most of its major peers as investors await the Federal Reserve’s policy statement today for signals on when it may curb bond buying that tends to debase the currency. The weakness in the US dollar is helping precious metals climb this morning, but this could change quickly as the FOMC decision hits the wires later today. Gold prices traded marginally lower yesterday as traders remained cautious ahead of the FOMC meeting starting Tuesday and a slew of US data prints due later this week. However, a halt in ETF sell-off as reflected in the SPDR Gold Trust holdings remaining unchanged at 927.35 tons for the third consecutive day in a row gave some support and limited the losses. Gold is trading at 1331.45 adding $6.65 as trader’s hedge their bets ahead of Mr. Bernanke’s statement later today. Silver also gained as traders took advantage of the steep declines to buy up the metal on the cheat. Silver remains under the 20 level but is trading at 19.855 up over 17 cents this morning.


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