PM End of Week Market Commentary - 4/4/2014

davefairtex
By davefairtex on Sun, Apr 6, 2014 - 11:10am

On Friday, gold rose +15.70 on moderately heavy volume to 1302.30. Silver closed up +0.13 to 19.95 on moderate volume.  When the nonfarm payrolls report was released at 0830 EDT there was some serious volatility, where a large number of both longs and shorts were stopped out during one violent 1 minute period.  After that, gold started moving higher.  The report didn't look all that significant to me, but who am I to judge?

Gold closed relatively near its highs, while silver lost most of its gains within a few hours.  Silver is back to looking weak once again - perhaps it was copper's failure to break higher that infected silver.

I talk a lot about waiting for COMEX buyers to appear.  While we haven't seen a high volume test of the lows which to me would be a conclusive event, we have seen an improvement in up-day volume, and price action has pushed gold back above its 200 MA and the 1300 round number.

For the week, gold was up +7.40 [+0.57%], silver up +0.13 [+0.66%], GDX up +0.66% and GDXJ up +0.56%.  Price action looked ok, but the volume was a bit light.

US Equities/SPX

More distribution this week in equities, even though SPX hit new highs.  Friday was not kind to SPX: the market opened up making a new all time high, but the opening was the high point of the day.  The market tried moving higher - but after three attempts it sold off the rest of the day, eventually closing down 24 points on heavy volume.

Its odd - all this distribution, and SPX making a new all time high each week.  At some point we'll have a correction.  They say topping is a process rather than an event.

Here's another clue:

Many of the high flier stocks: FB, EBAY, AMZN, NFLX have done poorly for the past month or so.  The whole biotech group (ETF: IBB) has also tipped over (down 20% since March 1) and started to drop with some serious enthusiasm.  Sometimes these stocks can be a guide to momentum and money flow; when they start to drop, it can herald a change in momentum for the market as a whole.

Lastly, the Nasdaq (QQQ) is starting to show a pattern of lower highs and lower lows.  On Friday, its selloff was quite a bit more dramatic than that of SPX, and it appears to be in much more serious distribution, with some very high volume down days.  When the Nasdaq starts underperforming SPX, its also generally a bad sign, since it tends to lead.

Miners

Mining shares tried to recover this week, but seemed to have a difficult time getting any consistent buy-side support.  Both GDXJ and GDX tried breaking out of their consolidation boxes on Friday, but failed, possibly caught up in the sell-off of SPX.

Still, GDX and GDXJ were the best performing sectors on my list on Friday, and it is often tough for miners to rally when equities drop overall.  While they don't appear to be leading gold higher, neither are they dragging it down.

The USD

The dollar moved higher, finally breaking out above its 50 day MA.  The move was modest, with the buck up +0.22 [+0.27%] on the week to 80.56.  The dollar's move higher didn't seem to impact gold this week.

Rates & Commodities

The daily chart for the long bond is looking bullish - TLT (20 year treasury ETF) has been consistently rallying since the beginning of the year, using the 50 day MA as support, even having a "golden cross" about five weeks ago.  This week TLT bounced off its 50 day MA once again and looks to be setting up for another breakout next week.  If SPX finally does break down, a relatively low risk way to short equities is to buy the long bond, which is where money usually runs to if stocks start to fall.

Perhaps the good performance in TLT is sniffing out a move lower in equities.

Commodities were down somewhat this week, off -0.48%.  The weekly chart still looks quite bullish, and a rest after 5 straight weeks of upside movement is to be expected, but that breakout may be postponed for a while.

Copper had a difficult time with 3.05, and overall the chart is suggesting to me that there is still a significant amount of doubt about what will happen in China.  The rally off 2.87 from 3 weeks ago says "no collapse tomorrow" but the lack of follow-through on the rally says to me that a lot of uncertainty remains.

Physical Supply Indicators

* Shanghai premiums on the Au9999 contract rose, up +1.58 to +9.49 above COMEX.  Delivery volumes of gold at Shanghai are down pretty substantially this week.

* The GLD ETF dropped -7.79 tons this week to 809.18 tons.

* Registered gold at COMEX rose significantly, up +3.60 to 23.43 tons of gold.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1303.60 and silver 19.90:

    PHYS 10.83 -0.26% to NAV [down]
    PSLV 7.96 +2.72% to NAV [up]
    CEF 13.91 -6.08% to NAV [down]
    GTU 45.51 -5.68% to NAV [down]

ETF premiums are mixed, but mostly down.  PSLV is the only ETF actually in premium and increasing.

Futures Positioning

The COT report is as of April 1st.  Managed Money increased shorts and bailed out of long positions - net change of 15k contracts overall, a relatively big move.  Producers reduced both longs and shorts, changing their position by increasing long exposure by 3k contracts net.

Overall, a moderately large move in Managed Money, but that's expected given last week's big move down.  Producers remain overall bullish, but Managed Money still doesn't have a large overhang of short positions, so we shouldn't expect a large short-covering rally to fuel a rebound in gold.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term DOWN, medium term UP, long term DOWN.

Silver: short term DOWN, medium term NEUTRAL, long term DOWN

Silver's 50 day MA turned flat this week, although silver itself remains below its 50 day MA so this won't stay this way unless silver moves higher.  Gold however managed to climb back above its 200 MA, which is a hopeful sign.

Summary

Gold rebounded this week, possibly putting in a low at 1280 and moving back above both its 200 MA and just barely back above the psychologically important 1300 level.  Silver is back to looking weak, probably because copper is also having trouble moving higher.

Looking at the various ratios and averages, only the 50 MA is rising for gold; the other averages are neutral or dropping.  Gold has managed to move back above its 200 MA, but that's about it - the moving average picture is "mostly bearish."  GDX:$GOLD is improving, but still bearish, as is GDXJ:GDX.  Gold/silver ratio of 65.26 is bearish, and is tracking sideways.  Most likely, it will depend on how copper performs, which is also appearing indecisive at this time.

Managed Money reduced long positions and increased shorts, not surprising given the large move down last week.  However, short positions still remain relatively light, so we shouldn't expect a massive short covering rally to fuel the next big gold move higher.

Shanghai premiums climbed this week, although gold deliveries dropped.  COMEX registered moved higher, the physical ETF premiums were mostly down, and GLD tonnage dropped.  Let's call physical signals as mixed, but somewhat positive.

Gold looks to have formed a low at 1280; volume isn't spectacular, but perhaps the rebound can be fed by money coming from the equity market, which looks to be topping (based mostly on the clear topping seen in Nasdaq and high-flier stocks).  Miners are neither leading nor following, while silver is back to looking weak.  Shanghai physical demand seems good, albeit with low delivery volumes.  Overall - a mixed picture, but I'm cautiously optimistic.

14 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
mysterious force in london & new york

So I got a message from Chris last week asking me if a particular article written in 2010 had any truth to it.  The article (https://marketforceanalysis.com/articles/latest_article_081310.html) described a particular bit of behavior whereby gold's price moves in London were significantly weighted to the downside, focused mostly on the action between the AM and PM london fix.

An initial study I did showed this was true.  This caught my interest.  Then I set out to try and quantify this behavior over time, to get a handle on just how severe it was, when it presented, to see if it was consistent over time or if it showed an increasing or decreasing pattern of pressure.

This gets a bit technical - I feel the need to describe my mechanism so other people can repeat it if they want.  But if that's boring to you, just skip the bits that come next and scroll down to look at the chart.

I selected two time periods during the trading day - the first, starting at 1600 Eastern (market close in NY) and ending at 1500 Japan (market close in Japan).  The next, from 1500 Japan (0100 Eastern or 0600 London) - 1600 Eastern.  The goal was to calculate the move in the price of gold over each time period.  Prices of gold were taken from the COMEX GC contract.

I didn't choose these time periods by accident.  I saw through my surveys that there was a clear pattern - prices would generally rise in asia, and they generally fell in London & NY.  Not every day, and not even every year, but on average over the period 2007-present.  But what I wanted to see was how these moves looked over time, and if the pressure was increasing or decreasing.

The time series I came up with summarizes the difference between gold price moves in Japan & London-NY, on a per-week basis.  So, a value of "31.5" on the series would signify that if you went long after NY closed and then went short London-NY each day, for a week, you'd have made $31.5 per ounce total on those trades that week, irrespective of what gold itself did during that time period.  This is basically the "gold is suppressed in London-NY" trade, and the chart summarizes your expected return from that trade.

 

It turns out the time series is quite volatile - so I smoothed it out using a 20 point moving average, so the overall trends become more apparent.  (If you want to try and trade on this information, the volatility becomes important since that's a picture of your risk - but if you just want to see the trend, the smoothing is important).

If there was no "undue influence" in a particular timezone, the values on the chart should be 0.  However, the chart below spends a great deal of its time above 0, and is especially pronounced during the great gold smash of 2013.  And I happen to know that most of the "value" in the trade is the London-NY short, rather than the Japan long.

In some sense, if there are forces of manipulation at work, this chart clearly shows they work particularly hard during London & NY trading time.  And more often than not, they are asleep once the market closes in NY.  What's more, they were working especially hard during the 2013 gold smash.

Is it a smoking gun?  Well, the effect is pretty dramatic during 2013.  You could definitely have made money if you did that simple "long in asia, short in London-NY" trade every day; $3.67 per trading day x 253 days = $929 per ounce.  And $2.78 of that daily move was the London-NY short.  (Caution: volatility in this trade was massive - this is not for the faint of heart - nickels in front of steamroller type stuff, etc.  Also, past performance does not imply anything about future results.)

At the end of the day, I can't say this is manipulation, because that implies a knowledge of who is doing this and why, which I don't have any evidence of at this time.  But I will say there is a very strong downside bias during the London-NY trading hours.  Very strong, and over time, very consistent.  And its effects seem to be increasing, and were particularly strong during the gold smash.

Ultimately from some other analysis I've done, when really bad things happen to gold, it is in NY and London.  But this doesn't mean every single downside move in gold is due to this mysterious force - and indeed, it turns out that people worried about "gold smashes in the dead of night" are looking in the wrong place!

And I've done some more analysis that shows that a lot more bad things happen to gold when gold is in a downtrend, which makes sense to me - its easier to kick a guy when he's down.  So trend analysis remains important.  The mysterious force just happens to beat on gold more when it is moving downhill.  What's more, the effects of the Mysterious Force did not seem to impact gold's uptrend in 2010-2011, even though they were clearly present.  It would seem that the market is more powerful.

So there you go.  To me this is proof of - if not manipulation, a mysterious force that acts mostly in London & NY that tends to move the price of gold lower during that intraday time period.

Isn't that interesting?

SlowLorisLarry's picture
SlowLorisLarry
Status: Member (Offline)
Joined: Apr 6 2014
Posts: 1
Dave: Interesting? 

Dave:

Interesting?  Definitely!

Mysterious?  Perhaps not so much!

Most precious metal mining companies are located in North America, and tend to sell their products when they are open for business there.

When Europe and N. America are asleep, Asian markets are open, and as we all should know, for the past couple of years Asians have been the big buyers of PMs.

Could that be enough to account for the patterns you describe?

SLL

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
North American Gold Selling

So SlowLor... you are saying that when mining companies sell their mined wares... they do it by selling a Comex futures contract?  That is an interesting way to sell physical Gold!        

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
gold sales

Bron would be the person to ask about how mines sell their gold.  I vaguely remember him saying they sell their gold to refineries at some discount (or premium) to the london spot price, depending on the state of the gold market.

Certainly miners likely wouldn't deliver on futures contracts as a way to sell their gold, but they might hedge their prices either through futures, or through gold forwards, which would have the same effect.

Now then, do I think the steady pressure of mine production hedging is causing this drop?

Well, most mines aren't hedging.  If mine production approximates 2700 tons/year, that's about 3500 contracts per day.  If 15% of mines have hedged forward their production, that's 520 contracts per day, vs 100k-150k contracts traded on the average day.  That's 0.5% of total daily volume from likely mine hedging.  I've seen 500 contracts traded in one minute in just a modest dip or breakout.  The big ones are 4000+ contracts.  In one minute.

What's more, I remember the immense amount of selling that happened in the april gold smash last year.  That didn't feel like a bunch of mines all striking it rich at the same time and suddenly all deciding its time to hedge forward their new production at that moment.

I think we should look elsewhere.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
Excellent work Dave!

That's really good work Dave, and I'm glad you did it because I can trust it now.   Nothing against the other folks doing the analysis, but I don't know them and I've always discounted the results because I was not sure of their methods.

So thank you for burrowing in..

Now about that mysterious force; it seems to me there are a few explanations that are most likely.  But let's start with one that is not.  

The explanation of "well, that's when the biggest markets are open and when the most traders are doing what they do" does not seem likely to me.  I've talked to enough hedge fund operators to know that they never sleep and that most of their strategies are baby-sat around the clock, either by humans or by algorithms.   If there was a clear pattern that they could exploit by simply long-shorting via a simple time series that would have gotten identified and arbitraged away pretty quickly.

So what are the explanations?

  • It is just plain old price suppression by western interests, which might consist of a melange of central banks and their proxy agents and governments.
  • The west sells and the east buys.  For whatever reason, everybody in the west located in both COMEX and at the LBMA have decided to sell both paper and physical gold, as much and as often as they can.  But why the people in the east, who are very price savvy, would not also notice this and simply have their agents buy from London and not compete against each other is a mystery.  Oh wait.  It's not.  This is exactly what's been happening (see stories on LBMA shipments to SWI for processing and transhipment to east).
  • The LBMA and COMEX main operators have figured out how to make more money off of bear raids than bull runs and so they are in a perpetual mode of running smash & grab operations regardless of overall price trends or fundamental supply/demand issues.  The creation of false market prices that are out of alignment with market fundamentals is the very definition of market manipulation.

Ok...I've just sat here at my keyboard for five minutes trying to think of another explanation, and perhaps it's early and my imagination is failing me, but I cannot concoct a 'normal market' explanation that makes any sense.

So to me the most likely explanations are official suppression and market manipulation.  But I am open to the idea that it could be both.

Can anybody come up with a normal market explanation that makes sense?

 

 

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1191
I have no eye dear why or how

but i wish i could give Dave more thumbs up for his good hard work.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1449
cmartenson wrote: That's
cmartenson wrote:

That's really good work Dave, and I'm glad you did it because I can trust it now.   Nothing against the other folks doing the analysis, but I don't know them and I've always discounted the results because I was not sure of their methods.

So thank you for burrowing in..

Now about that mysterious force; it seems to me there are a few explanations that are most likely.  But let's start with one that is not.  

The explanation of "well, that's when the biggest markets are open and when the most traders are doing what they do" does not seem likely to me.  I've talked to enough hedge fund operators to know that they never sleep and that most of their strategies are baby-sat around the clock, either by humans or by algorithms.   If there was a clear pattern that they could exploit by simply long-shorting via a simple time series that would have gotten identified and arbitraged away pretty quickly.

So what are the explanations?

  • It is just plain old price suppression by western interests, which might consist of a melange of central banks and their proxy agents and governments.
  • The west sells and the east buys.  For whatever reason, everybody in the west located in both COMEX and at the LBMA have decided to sell both paper and physical gold, as much and as often as they can.  But why the people in the east, who are very price savvy, would not also notice this and simply have their agents buy from London and not compete against each other is a mystery.  Oh wait.  It's not.  This is exactly what's been happening (see stories on LBMA shipments to SWI for processing and transhipment to east).
  • The LBMA and COMEX main operators have figured out how to make more money off of bear raids than bull runs and so they are in a perpetual mode of running smash & grab operations regardless of overall price trends or fundamental supply/demand issues.  The creation of false market prices that are out of alignment with market fundamentals is the very definition of market manipulation.

Ok...I've just sat here at my keyboard for five minutes trying to think of another explanation, and perhaps it's early and my imagination is failing me, but I cannot concoct a 'normal market' explanation that makes any sense.

So to me the most likely explanations are official suppression and market manipulation.  But I am open to the idea that it could be both.

Can anybody come up with a normal market explanation that makes sense?

TPTB be rigged every other market so why would gold be immune especially when it is a threat to the $ as its price rises.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
my thesis: clueless suppression

I've always felt that the thesis that we have in place a group of ultracompetent market suppression people in the gold market gives them way too much credit.  The demonstrated incompetence of the Fed in imagining subprime was contained, that no bubble had occurred, that the pop wouldn't be all that bad, that if they dropped rates enough they could undo a multi-generational debt bubble pop and get people to start borrowing again, and that finally, if they bought enough bonds, rates would come down and stay down.  And its these jokers we imagine are spearheading some ultracompetent market suppression operation?

Here's what we know:

1) Fact: They like to wang markets around - in fact, they see it as their job.

2) Fact: They have gold.  They can lease that gold.  They have leased gold before.

3) Fact: they are relatively clueless about markets and trading.  Witness how they spent 3.5 trillion dollars trying to get long rates down, and it ended up not having any effect once the market decided rates needed to rise.  ("I printed 3.5 Trillion Dollars and all I got was this Stupid T-Shirt")

4) Best guess: they'd prefer the gold price not to get out of control, especially once they decided to print.

So, they really could have decided to intervene once their printing campaign started, feeding leased gold into the market during London/NY trading hours (they're bureaucrats - they DO sleep) perhaps at the London fix, and at some other intervals, even during the bull move when it clearly didn't work (market is vastly stronger than intervention once it gets the bit in its teeth) but the intervention nevertheless moved the needle enough (intraday) to catch the eye of some Big Money somewhere.

So Big Money, who are smart enough to follow trends rather than idiotically try and change them - trading 101 - decide to really pounce on gold once the inflation threat went away (i.e. commodity index started dropping for a while) because they know they have that intervention to help them along.  Some moving average crossings happen, bearish chart patterns form, and then:

Continuous intervention + market going that direction anyway + big money taking advantage = gold smash.

My guess: whatever professional is handling whatever suppression attempts are happening during London/NY is happy to make money from it.  No need to tell the central bankers that you can't change trends.  That's "tapping the glass, disturbing the fish."  Our central bankers aren't traders, they won't know any better.  Take their money, and execute the trade.

We could also have some other Big Money who detected the intraday effects of the suppression attempts and are cleverer than I am and have found a clear pattern to them - and are front-running it and/or otherwise taking advantage, thus magnifying the effects.  This won't change the trend, but it would definitely magnify the intraday effects, as (hypothetically) gold is now routinely sold at London open, and then bought right back again at the NY close.

Again, we have to both explain the gold smash, which worked, AND the clear attempts to play King Canute and command the tide not to rise during the London/NY trading hours during 2010-2011, which definitely did NOT work.  This is my best sense.

 

tricky rick's picture
tricky rick
Status: Bronze Member (Offline)
Joined: Dec 9 2011
Posts: 92
mstm dave fairtex

AND maintainence of the status quo with the inept government being front run and "guided" by those traders with more brainmatter and desire.  Can last a long long time...

IMO here's the danger...  almighty "DOLLAR" knocked off it's reserve status throne.  Trader's can't option that!   When politics and finances collide - guns rule!

tricky

boise

 

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
No Manipulation

Dave,

Of course there is no manipulation, just a mysterious "force" that dumps tens of thousands of contracts in the Globex in the dark of the (U.S.) night. 

"So there you go. To me this is proof of - if not manipulation, a mysterious force that acts mostly in London & NY that tends to move the price of gold lower during that intraday time period."

Thanks for explaining this is with detailed charts.  I found the thesis that there is a mysterious force as compelling as your conclusions that the reason we should allow big commercial entities the ability to create massive amounts of false gold paper for "liquidity" reasons.

As you and I both know, wealthy individuals and large institutions with a fiduciary duty to maximize returns for their owners are unsophisticated, do not have access to the world's best trading advice, and are not nearly as smart and you, Jim, me and Chris.  They clearly have no knowledge of the most basic principle of efficient market operations like you and I do. 

Apparently the firms with enough wealth to be able to dump 2,000 contracts in a few seconds are run by a bunch of people with low IQs that just scream at their trading desks to 'Sell! Sell!' at random intervals during the month.  Clearly these wealth entities are motivated by an unseen and unknowable "force".  Maybe it is mind control by the Vulcans or those evil Klingons.

That makes a lot more sense to me than a cartel of bankers who are engaged in suppressing gold price to support official Fed and U.S. government monetary policy of maintaining confidence in the dollar and the "Optics" of stable prices of commodities.

And making mountains of stolen cash in the process.

"In some sense, if there are forces of manipulation at work, this chart clearly shows they work particularly hard during London & NY trading time. And more often than not, they are asleep once the market closes in NY. What's more, they were working especially hard during the 2013 gold smash."

And by the way, I agree that there is downward bias in NY and London markets during intraday trading, notably on days following overnight smashes.  The part that you are missing is that this downward bias is the follow through in the much larger Comex markets, that is driven by Comex algorithm trading, as a direct result from the overnight smashes.  That is exactly the playbook, use focused contract dumps, in the smallest market, to create a strong price direction (trip a technical number, etc, etc), and let the algos do the heavy lifting the next day on the Comex. 

This is indeed efficient use of markets.  However it is efficient use for the theft of wealth by commercial banks, not for free and fair trade of commodities.

H

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Bulter on Manipulations

From Ted Butler (www.goldsilverworlds.com)

"I think it is absolutely crazy that we have allowed our markets to evolve into such a state where a small group of specialized trading entities are determining prices for the rest of the world.

Some will be quick to say that Comex or the CBOT are not the only markets in the world, but that's naive.  These markets set the price of metals and grains, period.  Everything is based off of these exchanges. 

This creates problems since the traders setting the price, these speculative funds, whether they are large specs or commercial, are completely distinct and separate from the real producers and consumers of the commodities. 

What makes spec technical funds technical is that they are only concerned with price change and nothing else.   This is what separates them from real producers and consumers, who must contend with mining costs and profit margins.   The technical funds only consider price and not the underlying fundamentals.

This is what makes the stories about pending economic weakness signaled by lower copper prices ironic.  Those who are creating the lower prices, the technical funds, they don't consider economic activity at all. "

Amen, Brother Ted.

 

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Cheating versus Trading

Dave,

Some clear thoughts byTed Butler on cheating versus trading.

(http://www.zerohedge.com/news/2014-03-22/how-why-jpmorgan-comexshould-be-sued-precious-metals-manipulation)  (bolding mine for emphasis)

"What is the theory or premise of the legal case for market manipulation against JPMorgan and the CME? The COMEX has evolved into a trading structure that has allowed speculators to control and dictate the price of world commodities, like gold, silver and copper, with no input from the world’s real producers, consumers and investors in these metals. The CME has allowed and encouraged this development for the sole purpose of increasing trading fee income. Not only do the world’s real metal producers, consumers and investors have no effective input into the price discovery process on the COMEX; because the COMEX is the leading metals price setter in the world, real producers, consumers and investors are forced to accept prices that are dictated to them by speculators on the exchange.

Because so few of the world’s real producers, consumers and investors deal on the COMEX, the exchange has developed into a “bucket shop” or a private betting parlor exclusively comprised of speculators. Again, this is an intentional development as much more trading volume is generated by speculative High Frequency Trading (HFT) than by legitimate hedgers (like miners) transferring risk to speculators. Legitimate hedgers don’t day trade. It is no exaggeration to say that the COMEX has been captured by speculators and abandoned by legitimate hedgers.

In turn, JPMorgan has developed into the “King Rat” in the speculative bucket shop by virtue of its consistent market corners in COMEX gold, silver and copper futures. The COMEX market structure was already rotten when JPMorgan blasted onto the scene in March 2008 when the bank acquired Bear Stearns’ short market corners in gold and silver. Incredibly, the regulators engineered the Bear Stearns rescue, granting to JPMorgan a listed market control in addition to the OTC market share control that JPM held for years. Talk about a powerful manipulative combo – JPMorgan and the COMEX.........

According to the CFTC’s data, there are two primary groups of speculators setting prices on the COMEX. One group are the technical funds, traders that buy and sell strictly on price movement. Also referred to as trend followers and momentum traders, the technical funds buy and continue to buy futures contracts as prices climb; and sell and continue to sell, including short sales, as prices fall until prices subsequently reverse. These traders are included in the Managed Money category of the disaggregated version of the COT report, primarily because they are investment funds trading on behalf of outside investors, also known as registered Commodity Trading Advisors (CTA’s).

One thing that can be said for certain about these technical funds is that they are pure speculators, as there is no mining company or user of metal in this category by CFTC and CME definition. By itself, there is nothing wrong with that as regulated futures exchanges need speculators to take the other side of the transaction when legitimate hedgers wish to lay off price risk in the normal course of their underlying business. This is the economic justification for why congress had authorized futures trading originally. The problem is that there are few, if any, legitimate hedgers involved on the COMEX nowadays; only other speculators that are falsely categorized as legitimate producers and consumers.

The second group of speculators are primarily categorized as commercials, mostly in the Producer/Merchant/Processor/User category, but also in the Swap Dealers category. Since these terms are quite specific and strongly suggest that only legitimate hedgers are included, most people automatically assume the traders in these commercial categories are just that – hedgers. But that is not the case, as most of the traders in these two categories are banks, led by JPMorgan, pretending to be hedging, but which are, in reality, trading on a proprietary basis strictly for profit. Simply put, JPMorgan and other collusive COMEX traders are just pretending to be commercially engaged in COMEX trading in gold, silver and copper when, in reality, they are nothing more than hedge funds in drag.

Words to consider for the MFA (the Mysterious Force Alliance). H

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
The price of gold makes sense

The fact that gold has been smashed for almost 2 years and languishes in a trading range between 1200 and 1800 make perfect sense.

After all, our monetary problems are completely solved.

The Monetary Base is shrinking and returning to normal levels:

MZM is back below 10 trillion and we are no longer on an exponentially increasing path toward 20, 30 50 trillion of MZM money (Chris, that wiggle you so famously wrote about just after the recession in 2010 is now looking more and more like a slip of the graph-makers pen at this point):

And velocity is exploding to all time highs:

Indeed, why on earth would any want a monetary insurance policy, that is counter-party risk- free as alternative to fiat currency?

Looks like the government has everything perfectly in control.  And we can believe everything they tell us.

You know, like the parts about how they are concerned about jobs, our shiny new health care will be cheaper and better now that the government controls it, if you like your doctor, you can keep your doctor?

H

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
evidence, Armstrong on Inflation, and trends

Hrunner-

Of course there is no manipulation, just a mysterious "force" that dumps tens of thousands of contracts in the Globex in the dark of the (U.S.) night.

Evidence shows that the mysterious force dumps a whole lot more contracts during London trading hours than it does during Asia.  In asia prices actually rise on average during most time periods - and overall, the bias during these time periods is distinctly up over most time periods I looked at.  Over the whole of the move from 2007-2014, the bias was higher, even dramatically higher, not lower:

NY Close - Japan Close: +1628/oz

Japan Close - NY Close: -991/oz

Market overall: +660/oz

My conclusion: the whole "evil deeds are done in thinly traded asia markets" complaint is largely a canard.

And by the way, I agree that there is downward bias in NY and London markets during intraday trading, notably on days following overnight smashes.  The part that you are missing is that this downward bias is the follow through in the much larger Comex markets, that is driven by Comex algorithm trading, as a direct result from the overnight smashes.  That is exactly the playbook, use focused contract dumps, in the smallest market, to create a strong price direction (trip a technical number, etc, etc), and let the algos do the heavy lifting the next day on the Comex.

I've seen both things happen.  Sometimes the "japan smash" results in a sell-off, and sometimes it results in buyers appearing and a rebound happening.  Most of these "japan smash" cases were simply a continuation of a trend that had already been established.

Here.  I ran off and did a study.  When the trend was up, a "japan smash" (down -10) led to an average move in LNY of -0.44 the following trading period [27 events seen] - i.e. "average behavior" for LNY.  When the trend was down, a "japan smash" led to an average move in LNY of -14.37 [27 events seen].

This is a massive difference in outcome, and one you can most definitely make money on.

What this says to me is - the trend is the key.  If the trend is down, and Japan gets a smash, its a good bet that LNY will follow along and your short will make money.  A very, very good bet, actually (89% of the time).  But if the trend is up, the trade is much more dicey (44% of the time).  There was only one case, in 2011-08-24, where the trend was up, there was a "japan smash", and there was a big followthrough in LNY (down 87 points).  Only one case - and the day immediately prior was an 84 point down day in gold, so that one could easily be seen as a "continuation of action from the previous day."

So now we know, shorting after a japan smash is "easy money" in a downtrend.

Based on the evidence I see, this supports my general thesis: "It's the trend, stupid."  To paraphrase Clinton.  The weasels can't change the trend, but they most definitely do push it along a bit faster.  And the big moves happen mostly in London, and sometimes in NY.

I came across this article a day or so ago which speaks to your charts:

http://armstrongeconomics.com/2014/04/06/inflation-is-not-always-caused-by-change-in-money-supply-deflation-is-engulfing-europe/

The velocity of money peaked with the 1998.55 (July 20th) peak in the Economic Confidence Model. As taxes have been rising, tax enforcement has risen, and the insane changes to capital gains taxation where you pay now on gains, but losses you can only write off $3,000, investment declines as does VELOCITY. The greed of government has all combined to reduce long-term investment. Then add the 2011 hunt for Americans worldwide and you have a classic trend of collapsing velocity in money that negates inflation and increases cash holdings as liquidity declines further. Corporate cash is at a record high $1.64 trillion demonstrating how the velocity of money is also critical. If the velocity increases yet the supply of money remains unchanged, this will be inflationary for more people are spending and money turns over rapidly without increasing the supply. Nonetheless, increase the money supply, as the Fed has done, but raise taxes, tax enforcement, and the collapse in the velocity of money will offset any increase.

You have to scroll past a bunch of stuff to get to the meat, but its there.  Armstrong points out that money supply alone does not cause inflation.  Print a trillion dollars and then store it in your cellar - not inflationary.

What's more if the governments are hunting down your money, its likely you won't be spending or investing it, you'll be looking for places for it to hide - reducing velocity and investment.  Increases in taxes are also deflationary, as the article points out, so if you mix money printing with a tax increase, the deflationary impact of a tax increase negates the money supply increase.

Likewise, higher oil prices are also deflationary, as I have pointed out before.  Higher oil prices = less money to spend on "stuff" = deflationary impact.  As I wrote in another piece, the inflation from the 1970s wasn't oil-driven, it was money driven, mostly by a massive increase in debt.

In other words, inflation is the result of a complex set of interactions in the economy.  It is not just about the money supply.  So if your correlation of gold to money supply doesn't work, does that mean you run off and blame manipulators for it?  To me, that's similar to blaming "gremlins" for your science project failing rather than - say - your own bad science.

Ultimately, I buy gold - but I buy it as insurance against scenarios that make sense to me.  And in the meantime, its awfully comforting to me to see that trends are really helpful in explaining price action.  Rather than, say, models that force you to assume the existence of an ultra-powerful secret cabal that can set prices to be whatever they want, whenever they want.

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments