JP Morgan Chase and Gold

One of the largest investment banks in the world, headquartered in New York. The largest U.S. bank, the world’s sixth largest bank by total assets and the world’s second most valuable bank by market capitalization. JP Morgan Chase. An eternal enemy of precious metals bulls, accused of selling uncovered shorts on Comex. The bank that allegedly manipulates gold and silver markets. Let’s analyze its link with gold – and whether its collapse is coming, as some analyst are afraid.

JPMorgan Chase Collapse and Gold

How possible is that JPMorgan Chase collapses? It’s a difficult question, since bank’s activities are opaque and blurry. Let’s look at the chart below.

Chart 1: The quote of JPMorgan Chase’s shares listed on NYSE from 2008 to 2018.

The quote of JPMorgan Chase’s shares listed on NYSE from 2008 to 2018

As you can see, the shares of JPMorgan Chase significantly rebounded from the levels seen during the financial crisis of 2008. Rebounded? The price has surged more than five times, from about 20 to about 110! And the bank’s price to book value is 1.6, which seems to be a nice result, at least compared to the Deutsche Bank. JPMorgan Sachs looks even better than Goldman Sachs and is not likely to fall in the near future. American banks generally dealt with the Great Recession better than their European peers. Trump’s deregulation of the financial sector will only help American banks, including JPMorgan Chase.

Hence, JPMorgan Chase is a rather poor candidate for being the next Lehman Brothers. Its fundamentals do not look scary, and it is unlikely that the U.S. government would allow for the bankruptcy of the largest American bank. We believe that gold bulls should not count on that. However, investors should take all such predictions with a pinch of salt, as the future is uncertain and nobody really knows what JPMorgan Chase has on its balance sheet and in its derivative book.

Together with Goldman Sachs, JPMorgan Chase is considered to be a villain and a greedy manipulator, cornering the precious metals market. However, JPMorgan Chase serves as a bullion bank, so it doesn’t bet on price moves. Instead, it takes the opposite side of the trade with speculators. And JP Morgan is an LBMA market maker, so it simply must engage in the gold and silver markets. There is no systematic price suppression – instead, there are both bear and bull markets in gold.