PM Daily Market Commentary - 7/14/2014

davefairtex
By davefairtex on Tue, Jul 15, 2014 - 2:35am

Gold was down hard today, losing -32.20 to 1307.80 on very heavy volume; silver was hit for -0.54 to 20.96 on moderately heavy volume.  Gold started selling off a couple of hours into trading in Asia, carried through to London, culminating in a 8,000-contract spike lower at 0900 EDT in NY, whereupon it traded sideways for the rest of the day.  Silver followed, but was not hit nearly as hard.

After the initial losses in the asia session, it was clear to me that the shorts were following up with their initial successes by selling the rallies and challenging the buyers, who were clearly not enthusiastic enough to push prices back up higher.  We'll have to see who did what when the COT report comes out on Friday.

The USD closed unchanged, at 80.22.

The miners did pretty well, all things considering.  With the entirety of gold's loss coming before the NY market open, GDX opened low, tried rallying in the AM session through the first hour, then sold off closing down -2.64% on heavy volume.  GDXJ was hit for a -4.79% loss on very heavy volume.  As selloffs go, it wasn't as bad as one might have expected: the GDX:$GOLD ratio didn't move much at all which is a positive sign, all things considered.  And in the chart below, you can see that GDX remains above its old consolidation range - just barely.  The GDXJ chart looks similar, but it appears to be slightly more positive than GDX.

From my perspective it was just about as good a day as one might have expected given the beating gold took prior to market open.  GDX closed near its lows, but managed to avoid dropping back into its old consolidation range by a slim margin.  So far the miners are showing reasonable strength in the face of a bad day in gold. 

Looking at the muted price action in gold during the NY session, it definitely looked like the Asia-London hammering took a bit of the starch out of the longs.  I would expect the shorts to continue trying to push the market lower until the buyers definitively show up.

SPX closed up +10 to 1977, while the Nasdaq managed to score another all time closing high.  VIX dropped to 11.82.

Bonds dropped a bit, off -0.43% but are still hanging on above their 20 EMA and still look bullish overall.

Brent crude - what can I say.  After getting steadily pounded for the past three weeks, it managed to close up +0.19 today, but I haven't seen any sign of a reversal pattern just yet.

 

20 Comments

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Need Analysis

Dave,

Someone told me that gold markets were free and fair, that they were reliable pricing signals of actual supply and demand, I need to stop worrying about U.S. policy of manipulation since really that's just how a commodity market works and that I'm not sophisticated or experienced to understand that there are fluctuations, and that it is just conspiracy theory talk to suggest that the United States government has an official, but secret, policy to suppress the price of precious metals through collusion with commercial banking institutions.

Fair enough.  I need some analysis of the last 24 hours.

81 tons of gold were sold in 11 minutes

I'm sure its not fake paper gold, because, as I've been told by our trustworthy regulators and some highly experienced gold analysts that these markets are free and fair, that sellers would never create 81 tons of paper gold for the simple reason of price capping and profiteering, so these 81 tons of gold represent actual producers proffering actual physical gold, readily available.  Now by my calculations that's over a third of the U.S. annual production.  One third of production in 11 minutes.

So I need some analysis, because I watch economic indicators and news fairly closely, and in my inexpert eyes, I could not find an explosive, fantastically big gold-negative consequential event that would ignite what could only be described as a massive panic in gold selling.

Did a mining company announce a wonderful, gigantic high-grade ore find with plans to dig it out of the ground and throw it into the market as soon as possible?

Did the president and congress make a joint announcement that they are completely changing their reckless financial course, and making immediate changes by dramatically reducing government spending, creating much-needed, pro-business tax relief laws, and total reformation and reduction of government bureacracy?

Did a group of U.S. physicists announce they discovered really cheap and easily produced cold fusion technology which would lower energy costs by 90%, albeit in 10 years.?

Did the Fed announce that they would raise interest rates from 0% to 15%, and start unwinding its $4 trillion balance sheet immediately in the open market in order to make the USD hugely more scarce and more valuable?

In your expert analysis, could you point to the singular event that occurred at 2:00 AM EST that would lead to such massive, panic selling of 81 tons of gold in 11 minutes?  I appreciate it in advance as I would like to learn how to trade free and fair markets based on reliable trading signals.

Thank you in advance.

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Letter to CME

Reprinted and timely

Bill,

The CME’s latest gold margin change announcement got kicked off in grand fashion. All of the cartel’s dirty tricks were pulled out of their bag. There was pressure on the access trade open. Next up was the 2:20 AM flash crash, featuring a 13 ½ ton gold dump in that single minute. That set up the pre-Comex open bash at 8:20 AM, featuring another 27 ½ ton dump in just 7 minutes. And finally there was the 9:00 AM pre-NYSE open dump, with a whopping 12,862 August contracts dumped in just 3 minutes. Most of that 40 ton blitz occurred in one single minute at 9:01 AM, and left no doubt that the cartel is apparently defending $1320 to the death. Nothing like selling a cumulative 81 tons of paper gold in just 11 trading minutes to make a powerful statement, that being regulation and enforcement is non-existent.

The newer lower margin requirements for gold and silver now have gold at a fairly lofty 22-1 leverage, with silver still lagging at 12.7-1. Enticing more (alleged) speculators into silver while it is at near record open interest is a curious decision. Funny too they decided to lower margins right as silver finally became more "volatile". I suppose now we can look forward to silver open interest topping 200K. That would be a billion ounces of silver contracts, no biggie I guess only if you don’t care about manipulation. You have to wonder just WHO those alleged speculators are that all along that have been willing to pile on such huge amounts of contracts in spite of leverage mostly in the single digits. Optimistically you’d say the shorts are screwed but who knows what’s going on with the COT.

Dow back to 17K, gold back under $1320. Central planners of the world rejoice. Any "doldrums", as in the summer variety, are strictly an imposed event. Behind the scenes however the action is anything but a state of torpor. No matter though, just keep MOPE alive in the hearts of the clueless, until bail-ins and hyperinflation become an all-too painful reality.

James

http://www.tfmetalsreport.com/comment/418134#comment-418134

davefairtex's picture
davefairtex
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Posts: 5681
markets

It would be a constant source of amazement to me, if it weren't so predictable, that one standard is applied by mainstream goldbug commentators to gold prices that spike higher, while a completely different level of (accusatory, even shrill) commentary occurs when prices spike lower.  Just once I'd like to hear a massive whiny post when gold spikes up $40 in one day about "who buys gold like that", and a calculation of "how many paper tons of gold was bought in one minute."  Sheesh.

Back when I designed systems, there were two things: "what the customer asked for", and "what the customer actually needed."  These two things are often not the same, since the customer could be particularly clueless about both his own needs, as well as the capabilities (and costs) of hardware & software.

So in that spirit, rather than providing you with what you ask (analysis), I'm going to provide you with what I believe you need (training).  Namely, I'll first ask you to answer some questions of my own - these answers might well help you refine your understanding of How Stuff Works in the futures markets, and at that point I won't need to provide you with the answers you seek, since you'll be able to figure them out for yourself.

1) Do you know what a stop is, and how it works?

2) Do you know where stops are generally placed?

3) Do you know who places these stops, and why?

4) Do you know what "stop-gunning" is, who does it, how it works, and why?

5) Do you have a sense of just how long the techniques regarding (4) have been happening in markets?

Some optional questions:

1) do you know what resistance is, what it is caused by, and how it manifests?

2) do you know what support is, what it is caused by, and how it manifests?

3) do you understand what happens when support - or resistance - breaks?

So you have a choice.  You can either really try to understand how stuff works, or you can just continue throwing rocks when things don't go the way you expect them to.

Personally, I don't think intraday action in the futures markets - pretty much any futures market - is fair.  They are a snakepit for snatching money away from the unwary who imagine "trading to be easy" rather than a combination of art & skill that is learned over years if not decades.  Big computers work tirelessly to strip the clueless of their money.  Best to stay away.  Over longer timeframes, however, it all sorts out.

KugsCheese's picture
KugsCheese
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Posts: 1469
As Expected - Gold Paper Dump

BsmRBYzCEAAo8Kk.png:large

davefairtex's picture
davefairtex
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Posts: 5681
spikes down

Kugs-

Spikes down are as common as dirt - past few months, there was one almost every single day.  You guys just didn't care or notice (at least, I didn't get to see posts like this) because they were all bought by eager longs, so the price of gold wasn't affected.  And no prior lows or support levels were broken, so the volume wasn't so big.

Ah, but when the spikes down don't get bought - that is what encourages the shorts.  And they keep on shorting, and shorting, and shorting until the buyers finally appear.  When stuff works, keep doing it, until it stops working.

So far, no buyers today.  Gold looks to be closing at/near the low.  Maybe we'll see another spike lower intraday tomorrow, and then the discount will be large enough for the buyers to come back in.  We are just now approaching oversold levels.  If the uptrend is still in place, likely we bounce in the next few days.  Of course if we're in a trading range, we probably drop back to 1240.  We just have to wait for the market to show us what's up.

ommm's picture
ommm
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Posts: 30
I'll take mine plain please
davefairtex wrote:

So in that spirit, rather than providing you with what you ask (analysis), I'm going to provide you with what I believe you need (training).  Namely, I'll first ask you to answer some questions of my own - these answers might well help you refine your understanding of How Stuff Works in the futures markets, and at that point I won't need to provide you with the answers you seek, since you'll be able to figure them out for yourself.

1) Do you know what a stop is, and how it works?

2) Do you know where stops are generally placed?

3) Do you know who places these stops, and why?

4) Do you know what "stop-gunning" is, who does it, how it works, and why?

5) Do you have a sense of just how long the techniques regarding (4) have been happening in markets?

Some optional questions:

1) do you know what resistance is, what it is caused by, and how it manifests?

2) do you know what support is, what it is caused by, and how it manifests?

3) do you understand what happens when support - or resistance - breaks?

Hello Dave,

While I appreciate your efforts to inform the members of this site, for myself, I would be more receptive to your musings if there were a tad less of a patronizing tone to this post.  I generally think of training as something we do with dogs and diapers.  I, for one, would welcome being taught rather than trained.  As such, for each of the questions you raised, would you be so kind as to provide the answers?  Long ago, I realized that the markets were skewed to favor the market makers over the market participants and I put my efforts into building small businesses and acquiring managed rentals to provide a cash flow rather than risk my hard earned money in the Wall Street casino.  However, I still think it is useful to understand how these things work and you have certainly demonstrated your knowledge in these areas.  Please share it but, if you would, could you hold the sprinkling or patronization?  Thank you sir.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
traders, stops, and big spikes down

omm-

I would be more receptive to your musings if there were a tad less of a patronizing tone to this post.

A tad?  Just a tad?  :-)

I confess I sometimes have an issue:  I get testy when someone pretends to ask me for analysis, but the tone of the "request" indicates that no genuine asking is happening.  So you got to see one of my testy responses.  Factual, but testy in tone.  I'll try to do better and take the high road next time.

However, I still think it is useful to understand how these things work and you have certainly demonstrated your knowledge in these areas.  Please share it but, if you would, could you hold the sprinkling or patronization?

Since you ask me from a place of genuine curiosity, I can't help but respond in kind:

Generally speaking, "the market" consists of a bunch of human beings, some of whom in aggregate tend to act on their emotions in predictable ways.  In an uptrend, the emotion of "missing out" drives some subset of traders to buy at certain predictable points on a price chart.  We may be individuals, but in aggregate, we act like a predictable herd.  That's what chart analysis is all about - trying to assess some subset of the herd's likely emotional reaction at different price points.

Support

Support is the term of art that describes a price range where some amount of herd buying can be expected to occur.  One example of support would be a previous low - traders who wanted to get long, but didn't buy the low last time felt like they missed out.  If you ever heard anyone say (possibly even yourself!) "I'm gonna buy gold for sure, if it ever sees 1200 again" - that's "support at 1200."

Likewise, the lower bound of a trading range is also support.  If gold has bounced 5 times off 1240, that level will be support - traders will expect it to bounce again at around 1240, so some number of them will put in an order to buy at that point.  Lots of chart patterns provide support.  Another support area is the point at which a breakout happened.  Traders who missed the breakout at 1280 will put in an order to buy at that breakout point.  They don't want to miss out again.

We are creatures of emotion, and this stuff is based almost entirely on that - it works out well enough because the market is us.  Nothing works 100% of the time, but you will almost always see prices bounce, at least a little bit, at natural support levels.  Traders who missed out will put in automatic buy orders at support points.  More orders for more reasons results in stronger support.

Stops

Stops are used by disciplined traders to protect them from small losses turning into big losses.  A stop is an automatic sell order that triggers once a price is reached.  (There are lots of types of stops - I'm just talking about the sell stop to keep things simple).  The trading technique is to place a stop a certain distance underneath support.  This way, if enough herd buyers fail to materialize at support, the disciplined trader will sell out quickly, in order to prevent a small loss turning into a big loss.

Disciplined traders might use the combination: "I see a pattern that suggests gold will likely rally, and the price is 1283, support is at 1280, and so I'll buy gold at 1283 and put in a sell stop at 1275.  That way if support breaks and I'm wrong, I will lose only $8, but if gold does rally off my pattern at 1283, I'll let the trade run until I see it rise to its previous high of 1348, when I'll sell - risk of loss $8, while possible gain: $65."   Note the trader doesn't have to be right every time - even if he is only right 50% of the time he is still quite profitable.  Disciplined trading is all about odds and risk limitation.  It is never about sure things.  As they say, death & taxes are the only sure things.

Now of course other traders know generally speaking where stops are usually placed.  If a move down is strong enough, it will overwhelm the automatic orders at a support area, and price will "break support."   When this happens - when the collection of automatic buy orders are exhausted - those clusters of stops hovering below support get triggered, and that activates all those sell-stop orders, and you get to see one of those high volume spikes down.  The vast majority of the selling at that moment of the support break isn't one trader making a huge sale, its a whole bunch of traders exiting their positions all at once using these automatic stop loss/sell orders.

So a buy at support is a gamble.  The trader is betting support is stronger than the selling pressure.  Sometimes the trader is right, and sometimes he isn't.  A stop is trader insurance; it gets the trader out when he's been shown by the market to be wrong about one of his guesses.  Traders are wrong frequently, but the discplined ones take only small losses when they are wrong.  When they are right, they (theoretically anyway) make gains far in excess of their small losses.

Stop-gunning (a.k.a. stop-running)

Stop-gunning is a technique used by larger traders who calculate that support isn't so strong, and so when price gets near support, the method used is to sell a large number of contracts all at once.  If his sell order is larger than the number of automatic buy orders at support, he wins, support breaks, the stop loss orders placed under support by the disciplined traders are triggered, and we get treated to a big gap lower as all the stops get triggered more or less at once.  And the trader who successfully "ran the stops" gets rewarded with a good-sized payday.

Of course if support is stronger than the stop-gunning trader has estimated, then the traders who had the automatic buy orders have successfully bought the low, and the stop-gunning trader is now heavily short - right at the low, which is not a very happy outcome for him.  He'll have to buy-to-cover to bail out of his position, most likely losing money, which will provide fuel for a nice rebound making those that bought at support quite happy.

I'll let you guess how long the stop-running technique has been around.

So Who Would Possibly Sell Gold Like That?

So in answer to the question - who would possibly sell gold like that?  A bunch of disciplined traders all getting their stops hit on a support break. They all sell at once.  That's who.

So bottom line - when support gets broken and a zone of stops hovering right under support get hit, price tends to fall rapidly - almost instantly.  And the more disciplined traders who were recent buyers with stops in that area, the more contracts get sold when that zone is hit, and the bigger and more impressive the downspike.

Goldbugs - especially ones who don't really understand how disciplined traders work - don't want to hear this.  They imagine that every big spike lower in gold is because of an Evil Bullion Bank, or perhaps The Fed, or maybe an Evil Bullion Bank acting on behest of The Fed selling a bunch of "paper gold" contracts in order to suppress the price of gold.  That might actually be true in some instances, but quite often it is just one fairly big trader who is out to see if he can run a bunch of stops below a possibly weak support level in order to cash in on an intraday move.

Traders try running stops all the time.  In the past month, there was one of these about every other day.  In recent weeks, after the daily spike down occurred, buyers came in and bid the gold price right back up, overwhelming the sellers each and every time - much to my surprise.  This told me there were a large number of traders looking to get long gold, even as prices continued to rise.

But yesterday, the buyers were just not there.  My sense: after a long move up, most if not all the prospective buyers were already long.  Gold 1348 meant that every possible buyer of COMEX futures was already in the market, with few new buyers remaining on the sidelines with their automatic buy orders at support.  So when the shorts hit the market, buying was weak, and the stop-gunners won - and a bunch of longs were stopped out.  And then the stop-gunners tried again - and won again, and a bunch more longs were stopped out.  Rinse, repeat, and now we're at gold 1294.

If the longer term uptrend remains in place, at some point soon the COMEX longs will want to re-enter the market.  Likely, many of them still made money even though they were stopped out at 1320, or at 1300, etc.  They'll try to buy the dip at some support point, and when enough of them do this, they'll overwhelm the sellers, who will be forced to cover, gold will bounce, and the cycle will start all over again, and the uptrend will resume.

That's when I say, "the buyers showed up" and gold resumes its uptrend once again.  And that's what I'm waiting for.

 

ommm's picture
ommm
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Posts: 30
Thank you Dave

Thank you Dave for taking the time to provide very thorough and complete answers.  I appreciate your efforts. 

Just one more thing.  I think it may be a bit unfair to paint so-called "gold bugs" with the broad brush of foolishness.  I have a feeling that I might fall into the category you call a "gold bug" but, in my ignorance, I'm quite content with quintupling my money over the past 14 years, sleeping well in the process, and having abundant leisure time.  Many of the friends, acquaintances, colleagues, etc. that I know who trade in the markets seem rather frenetic about the whole process and spend untold amounts of time on this matter.  From my limited perspective, most of their studies of the markets (whether stocks, bonds, currencies, commodities,  precious metals, or whatever) can be summarized by the following: 

In the future, the market may go up, or it may go down.  If it goes up, it will be for some reason, and if it goes down, that will also be for another reason. 

In the mean time, I don't worry about such things, my wealth is preserved, my cash flow continues, and I spend my free time traveling around the world or fishing, hunting, gardening, cooking and eating gourmet food, and making love.  For me, it sure beats what they do staying up late and poring over endless charts but to each their own.

But I appreciate folks like you who keep us informed.  Thank you.

 

davefairtex's picture
davefairtex
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Joined: Sep 3 2008
Posts: 5681
broad brushes of foolishness

Well if you got the idea I'm painting all goldbugs with any broad brushes, then let me correct whatever it was I said that led you to this conclusion.

You stated your market philosophy as follows:

In the future, the market may go up, or it may go down.  If it goes up, it will be for some reason, and if it goes down, that will also be for another reason.

Seems right to me.

A common "mainstream goldbug" viewpoint of the market - but definitely not shared among ALL goldbugs, of which I consider myself one also - is somewhat more narrowly focused, and it might be summarized, as:

If gold goes up in price, its because people are finally realizing just how wonderful gold is.  However when gold drops in price, it can only be for one reason: the intervention of our Central Planning Authorities and their minions.  Left free of interference, gold would never drop in price; it would only ever go up.

As you might guess, I don't agree with this sentiment.  Gold is a market, like any other; sometimes it goes up, and sometimes it goes down.  And I was attempting to describe the mechanisms of the market to provide a framework for understanding why such movements take place, for those who might have an interest.  But hey, some people like to understand all the particulars of Physics, while others are content with the knowledge that "rocks drop when you let them go."

In the mean time, I don't worry about such things, my wealth is preserved, my cash flow continues, and I spend my free time traveling around the world or fishing, hunting, gardening, cooking and eating gourmet food, and making love.  For me, it sure beats what they do staying up late and poring over endless charts but to each their own.

I really appreciate your observation that there is such a wonderfully wide variety of people in the world.  For me, hunting fishing and gardening - wow, not my thing.  But I definitely like eating fish and cooking vegetables from the garden, so I totally respect the hunters, fishermen, and gardners.  Isn't the world great?

We do have a common interest in some things, however.   :-)

Jim H's picture
Jim H
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Posts: 2391
DaveF said,

If gold goes up in price, its because people are finally realizing just how wonderful gold is.  However when gold drops in price, it can only be for one reason: the intervention of our Central Planning Authorities and their minions.  Left free of interference, gold would never drop in price; it would only ever go up.

And this is what Dave disagrees with.  The above statement though is a clever way to make the denial that we are currently in a heavily manipulated state seem reasonable.  I believe we are in a heavily manipulated state right now.. that if allowed to, Gold would, based on current, physical supply vs demand, spike up considerably in price in order to find a balance, vs. where it sits currently.  This is different than saying Gold must always go up, otherwise it's manipulation.  This is what separates those of us who see and acknowledge manipulation, regardless of what I consider Dave's absurd position.  Sometimes I think we should just start another Gold channel here at PP.com so that our dialogue can be unfettered by the absurdist notion that the current price level is not the result of manipulation (that is supported at the highest levels - regulators turning a blind eye).  

Gee... look how one little black swan event (Malaysia plane shot down over Ukraine) causes the market to jump.... like a freaking spring that has been compressed.  The manipulation is the source of this compression.  Nothing is priced in, because price is artificial.  

      http://www.zerohedge.com/news/2014-07-17/fingerpointing-begins-ukraine-a...

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Jim H
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Schooling in the art of Gold manipulation

http://www.paulcraigroberts.org/2014/07/16/insider-trading-financial-ter...

Insider Trading and Financial Terrorism on Comex

Paul Craig Roberts and Dave Kranzler

July 16, 2014. The first two days this week gold was subjected to a series of computer HFT-driven “flash crashes” that were aimed at cooling off the big move higher gold has made since the beginning of June. During this move higher, the hedge funds, who typically “chase” the momentum of gold up or down, built up hefty long positions in gold futures over the last 6 weeks. In order to disrupt the upward momentum in the price of gold, the bullion banks short gold in the futures market by dumping large contracts that drive down the price and make money for the banks in the process.

As we explained in previous articles on this subject, the price of gold is not determined in markets where physical gold is bought and sold but in the paper futures market where contracts trade and speculators place bets on the price of gold. Most of the contracts traded on the Comex futures market are settled in cash. The value of the contracts used to short gold and drive down the price is well in excess of the actual amount of physical gold that is kept on the Comex and available for delivery. One might think that regulators would pay attention to a market in which the value of contracts outstanding exceeds by several multiples the amount of physical gold available for delivery.

The Comex gold futures market trades 23 hours per day on a global computer system called Globex and on the NYC trading floor from 8:20 a.m. EST to 1:30p.m. EST. The Comex floor trading session is the highest volume trading period during any 23 hour trading period because that is when most of the large U.S. financial institutions and other users of Comex futures (jewelry manufactures and gold mining companies) are open for business and therefore transact their Comex business during Comex floor hours in order to achieve the best trading execution at the lowest cost.

The big hedge funds primarily trade gold futures using computers and algorithm programs. When they buy, they set stop-loss orders which are used to protect their trading positions on the downside. A “stop-loss” order is an order to sell at a pre-specified price by a trader. A stop-loss order is automatically triggered and the position is sold when the market trades at the price which was pre-set with the stop-order.

The bullion banks who are members and directors of Comex have access to the computers used to clear Comex trades, which means they can see where the stop-loss orders are set. When they decide to short the market, they start selling Comex futures in large amounts to force the market low enough to trigger the stop-loss orders being used by the hedge fund computers. For instance, huge short-sell orders at 2:20 a.m. Monday morning triggered an avalanche of stop-loss selling, as shown in this graph of Monday’s (July 14) action (click on graph to enlarge):

Graph1

In the graph above, the first circled red bar shows the flash crash that was engineered at 2:20 a.m. EST, a typically low-volume, quiet period for gold trading. 13.5 tonnes of short-sales were unloaded into the Comex computer trading system. The second circled red bar shows a second engineered flash-crash right before the Comex floor opened at 8:20 a.m. EST. This was triggered by sales of futures contracts representing 27.5 tonnes of gold. A third hit (not shown) occurred at 9:01 a.m. This time contracts representing 40 tonnes of gold hit the market.

The banks use the selling from the hedge funds to cover the short positions they’ve amassed and book trading profits as they cover their short positions at price levels that are below the prices at which their short positions were established. This is insider trading and unrestrained financial terrorism at its finest.

As shown on the graph below, on Tuesday, July 15, another flash-crash in gold was engineered in the middle of Janet Yellen’s very “dovish” Humphrey-Hawkins testimony. Contracts representing 45 tonnes of gold were sold in 3 minutes, which took gold down over $13 and below the key $1300 price level. There were no apparent news triggers or specific comments from Yellen that would have triggered a sudden sell-off in gold — just a massive dumping of gold futures contracts. No other related market (stocks, commodities) registered any unusual movement up or down when this occurred:

Graph2

Between July 14 and July 15, contracts representing 126 tonnes of gold was sold in a 14-minute time window which took the price of gold down $43 dollars. No other market showed any unusual or extraordinary movement during this period.

To put contracts for 126 tonnes of gold into perspective, the Comex is currently reporting that 27 tonnes of actual physical gold are classified as being available for deliver should the buyers of futures contracts want delivery. But the buyers are the banks themselves who won’t be taking delivery.

One motive of the manipulation is to operate and control Comex trading in a manner that helps the Fed contain the price of gold, thereby preventing its rise from signaling to the markets that problems festering in the U.S. financial system are growing worse by the day. This is an act of financial terrorism supported by federal regulatory authorities. Another motive is to help support the relative trading level of the U.S. dollar, as we’ve described in previous articles on this topic. And, of course, the banks make money from the manipulation of the futures market.

The Commodity Futures Trading Commission, the branch of government which was established to oversee the Comex and enforce long-established trading regulations, has been presented with the evidence of manipulation several times. Its near-automatic response is to disregard the evidence and look the other way. The only explanation for this is that the Government is complicit in the price suppression and manipulation of gold and silver and welcomes the insider trading that helps to achieve this result. The conclusion is inescapable: if illegality benefits the machinations of the US government, the US government is all for illegality.

Dave Kranzler has years of experience in financial markets and spent 15 years on Wall Street. His site is www.investmentresearchdynamics.com

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Jim H
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Posts: 2391
Ted Butler now believes PM manipulation is conspiracy

http://www.silverseek.com/commentary/silver-conspiracy-13373

Very recently, I’ve had a second epiphany or Eureka moment similar to what hit me 29 years ago, although the circumstances were different and I thought I had already used up my lifetime quota of epiphanies. Whereas I was consciously seeking the answer to a perplexing question nearly three decades ago, this time I came across something I wasn’t looking for. In fact, while I used the word manipulation from the start, I avoided, like the plague, ever referring to the silver manipulation in terms of a conspiracy. For one thing, the term had always seemed derogatory to me and besides, I truly believed the manipulation was limited to a small handful of COMEX insider firms and individual traders. No more is that the case.

Despite not looking for a conspiracy (and not wanting to find one), the greater weight and flow of the evidence convinces me one exists in silver. To be clear, my distinction is that it is not just a small group of traders on the COMEX involved in a secret plot to suppress silver prices, but has now grown to include the CME Group and the CFTC. Since my long term understanding of the CFTC is that it has been, perhaps, the weakest and most ineffective federal agency of all, it is most likely that the CFTC’s inclusion involves more important federal agencies, specifically, the Treasury Department and the Federal Reserve.

First, let me make the point that I see the conspiracy as having started when JPMorgan acquired Bear Stearns in 2008, but really kicked into overdrive a little more than three years ago around the time silver reached $49. Currently the conspiracy to control and manipulate silver prices has never been stronger or easier to prove. In other words, while I can date the ongoing silver manipulation on the COMEX to 1983, it did not become an organized conspiracy involving the US Government until 2008. Moreover, I don’t believe that the regulators’ involvement was well-planned and deliberate from the start; it was more a case of bungling a set of emergency circumstances and a subsequent cover up..... continued at link.

maybe someday Dave will have his own epiphany. 

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davefairtex
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a heavily manipulated state

JimH-

I believe we are in a heavily manipulated state right now.. that if allowed to, Gold would, based on current, physical supply vs demand, spike up considerably in price in order to find a balance, vs. where it sits currently.

If you said the market was manipulated in both directions, you'd have my complete agreement.  For instance, your friend Butler who had his epiphany said silver manipulation happened starting in 2008 with the takever of Bear.  Clearly, the move to 49 - if it was an attempt to stop silver from rising - was the single largest manipulation failure ever.  If I recall correctly, was a five-bagger from 2008-2011.

And in other writings Butler has claimed that JPM currently has a "bull corner" in silver.  I could believe it.

I'm more than willing to believe manipulation in both directions, because that's supported by the intraday evidence.

What I don't find compelling is the explanation that every single downspike is claimed as prima facie evidence of Central Authority Action, while any upspikes that occur, no mention is made of them.  It is like the up-spikes never happen.  To me, this is not a very even-handed treatment of evidence, and so I do not find the resulting opinions these people have to be credible.

Its like convicting a person while only looking at the damning evidence, while ignoring the exculpatory evidence completely.

"If the market spikes up $10, with 5000 "paper long" gold bought in 1 minute, that's a RALLY IN GOLD!  YAY!"

"If the market spikes down $10, with 5000 "paper short" contracts sold in 1 minute, that's EVIL INTERVENTION.  BOOOO."

If I've mis-stated your belief system Jim, please don't hesitate to let me know.  I've never heard you explain what's going on when gold spikes up in exactly the same way it spikes down - often on "no news", often at "quiet times in the market" (i.e. non-US trading hours), etc.

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Jim H
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Spikes down vs up.

Dave,  Without getting into it about whether there are more spikes down on no news vs spikes up, I will say this;

Buying a large amount of Gold at one instant of time may not be the smartest thing, but it is not necessarily un-economic.  Selling a huge amount of Gold at one time is always uneconomic and will almost always lead to a lower average selling price vs. selling more slowly.  Selling a huge amount of Gold on a quiet Sunday night with no news insures the greatest loss.  Today's spike up was not on no news.  

There are very few Gold commentators who both praise the benefits of Gold but also deny the obvious officially sanctioned manipulation of price.  Doug Casey is one, and he has been widely derided of late for his position;

      http://www.kitco.com/news/video/show/FreedomFest-2014/722/2014-07-11/Gol...

It's a bit of an oldie, but I always loved Jesse's commentary on Doug's position, which remains steadfast today;

http://jessescrossroadscafe.blogspot.com/2012/05/chris-powell-answers-do...

18 May 2012

Chris Powell Answers Doug Casey's Questions About Gold Manipulation

 

I had read Casey's piece, but quickly lost interest in it at the argument that the gold market is so big it cannot be manipulated by the poor weak central banks and their surrounding commercial banks who are practically bankrupt.

If someone is a value sophisticate in a segment of the market, but does not understand and have concern for the power of the Federal Reserve and its associated banks being able to print money at will, then it is probably good advice to stick what you do know, and leave the economics for someone else. The saying that control of the money supply is a powerful tool has been around so long that it has become proverbial.

As for the size of the gold market, it is tiny relative to the financial markets. Consider the enormous size of the international currency markets. Or the bond markets. Do the central banks manipulate them? Did Citi not get caught blatantly shoving Euro bond prices around a few year ago? Of course they did. And as the sanctioned trader protested, it was nothing out of the ordinary. They just don't get caught at it unless they get clumsy.

Prices in a market are set at the margin or 'on the float' in the day to day trade. All a large trader or group of traders has to do is manage that marginal trade and the market will follow. If one looks at the amount of daily trading done on the LBMA in daily volume relative to the amount of physical gold changing hands, the answer is fairly glaring.

Market operators may not be able to resist the primary trend, but given deep enough pockets and high enough leverage, and cooperation from like minded manipulators, and they can make a good game of it for quite a long time. That is an old and familiar story for those who know the history of the markets.

As for the why of the manipulation there are many reasons. But as just one example, if I and a group of associates could knowingly push the bullion price around in the short term, we could make enough money skinning speculators in the ancillary markets, derivatives such as options and in mining stocks for example, to make it a very lucrative trade. This is Markets 201.

All that is required is that the regulators turn a blind eye to the manipulation in the markets. And if anyone close to the markets still doubts that they do that today after all that has happened, you will excuse me if I don't take them very seriously. The big trading desks have been using the markets like their personal ATMs, and every time they do get caught in some slip up it is a slap on the wrist and a nominal fine, and a promise not to do it again.

Has this fellow ever read anything from Ted Butler or Harvey Organ or Bart Chilton?

Forget gold for a moment, what about silver?  Is that market too big to manipulate? How about the energy markets in the US? Remember Enron?

Academics like Paul Krugman might not readily understand this, because this is not what they do, and they tend to approach the world through simplified, abstract models that are without the dark alleys and rough edges of the real world. 

The notion that markets cannot be manipulated are a corollary to the efficient market hypothesis, and idealized markets that naturally tend to stable clearing prices.

But I would expect someone who considers themselves a seasoned speculator and market savvy to know that markets do not behave in this manner, and that as long as there are markets, there will be those who will bend the rules and cheat whenever and wherever they can.

The Wall Street demimonde does not care if the markets are corrupt because if you get enough information to see the 'bezzle you can make money on the swings, or if not by trading then by serving the interests of the trading desks of the large funds.  But market distortions can play hell with investors, and is destructive of the real economy because of the malinvestment that long term market distortion cultivates.

I don't like to dwell on the manipulation when investing as opposed to speculating.  As I have repeatedly said here, take your investment positions based on logic and the fundamentals, and a long term financial portfolio plan, and ignore the short term noise and wiggles.  Thinking back I have always made the most, if not all the profits on balance,  when I took a solid position and then just rode it, sometimes for years.   So if I were in the game of mining stocks I would not want to see people distracted from them IF they were in it for the long term and they were properly fit in a portfolio. And so I understand why some people get frustrated by talk of market manipulation.

Chris Powell makes a good show of answering these sorts of things, but I do not think that the effort here will be worthwhile. Anyone who can trot out the canard that a 'market is too big to be manipulated' does not engage my interest for very long.   All will be revealed in time whether we argue about it or not. 

But the real economy is in dire need of serious and meaningful financial reform, which includes cleaning up the markets and taking the pampered princes off the malinvestment feedbag.  And that is something that matters greatly.

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Wildlife Tracker
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Jim

The Fibonacci sequence would not be found in an unnatural market. Play with some charting software and test various ways to observe the Fibonacci sequence, and you will see so many patterns and reactions that would only occur in a natural market.

If you were to try to fudge a coin toss, it would be nearly impossible without some very impressive mathematics because of the probability of various sequences that would occur. A coin toss would never land H T H T H T H T H T. It would land H H H T T T H H H H H H T T. There are specific probabilities that certain sequences would occur (ex. a run of 3 heads, and then a run of 6 tails) and you would only recognize that with a very large sample or training set of data in order to build an algorithm that could fake a coin toss.

A market has wayyy more dimensions, and would be much harder to fudge. The Fibonacci sequence is PROOF that the market is functioning naturally, at least most of the time.

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davefairtex
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economic losses & mechanics

JimH-

Ahhh.  I see the problem.  You don't realize that if the circumstances are right, it IS profitable to sell a whole lot of gold at once.  You may believe its non-economic, but that's only because you don't understand the mechanics of what is going on.

If a short seller can break through support and get to the stops clustered beneath, and the number of contracts protected by the stops outnumbers the number of shares that have to be sold to break support, its guaranteed to be a profitable operation.  Profitable in microseconds, actually.

I'll describe it really simply.  Realize that support isn't this black and white, and neither are the stops, but this is the concept:

Gold is trading at 1300.  There are 2k worth of buy orders representing support: 2k @ 1300.  Just underneath this level there are stops - "stop-market" orders: 3k @ 1295.  Down lower, there is a smaller group of buy orders: 100 @ 1293.  Below that, there's nothing.

Our short seller hits the sell button, putting 3k contracts up for sale.  BAM, sold 2k @ 1300, sold 100 @ 1293.  No bids left - market goes no bid!  But that 100 @ 1293 trade triggers the stops: "sell 3k @ market".

And here's where the magic happens.  Once the short sees the avalanche of sell @ market orders, he reverses himself.  He pulls his offer to sell (remaining 900), and changes it into a BUY to cover 2100 @ market.    He actually ends up buying up all the contracts from the 3k of trader stops who were currently finding no bids at 1293.  He comes in and provides the bid to the no-bid market!  What a hero!

So the trades that occur from the short's perspective are:

Sold 2k @ 1300 - covered @ 1293

Sold 100 @ 1293 - covered @ 1293

All of the "covering" was at the expense of the traders with the stops.  Once the stop-gunner breaks the hard shell of support, the "tasty bits" are the stops which allow the stop-gunner to cover his short at a profit.  And what shows up on the chart is a nasty spike down on very high volume.  The first part of the volume is support getting blown through.  The second part of the volume are the stops being triggered - and the stop-gunner covering his shorts that were sold just microseconds before.

It takes a computer to do this properly.  I've simplified the story.

And you won't hear traders talking about this.  Its far better for the stop-gunner if you believe he's an invincible central bank, rather than just some guy rolling the dice hoping he can break support to collect on the stops waiting just below.  "Don't tap the glass" - the motto of professional gamblers everywhere.

He's even got you believing the whole thing is "non-economic".  Uh huh.  I've got some property in Las Vegas to sell you...

Jim, this crap wouldn't happen every other day unless it was profitable.  Meanwhile, the traders who run this are laughing saying, "oh yeah baby, we're the Central Bank, better run in fear!"

Understand, conditions have to be right.  On the short side, there have to be enough longs in the market who have stops at a given level and support has to be weak enough for the ratio to work out.  But if buying weakens (i.e. support is relatively thin, after a long run up), and there are a lot of longs in there (there are lots of stops just waiting to be hit) - the odds go way up for this sort of thing because its just too tasty a treat for the stop-gunners to pass up.

And to you, it looks like "evil suppression", while to the stop-gunners, it looks like Christmas come early.

What's more, once the longs are all out, once the longside stops have all been run, the "attacks" magically stop.  There's no more fuel left for our stop-gunners.  Likewise, if support is strong, if there are lots of buyers in the market, it becomes too risky for the stop-gunners to attack.  If they can't break support, well, then it really IS uneconomic, just as you say.

Same game is played on the upside, but against the shorts, and their stops.

I believe that some selling may be organized with intent.  Most, however, is not - its just games played by traders to cash in on short term opportunity.  Occam's razor: if its profitable, likely there's no other explanation required.

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Jim H
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Illegal behavior

Dave,  What you describe is distinctly illegal behavior in a commodity market.  The fact that it happens over and over again is the most distinct proof that the regulators, the Gov't and the FED, are participants.

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thc0655
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A few questions Dave

I have a few questions, Dave.

1. Is what you described illegal, as Jim said?  Should it be illegal?  Is it illegal in any other "markets" (bonds, stocks, new/used cars, etc.)?  Is it unethical (though perhaps technically legal)?  

2. This only works in a "paper market" (tertiary wealth), right?  This wouldn't work in a purely physical market, would it?

3. Who benefits from this (aside from the obvious profits for those who "win" these games)?  Does society benefit?  Does it improve our stewardship of the environment?  Does the broader economy benefit? Do miners/producers benefit?  Can market participants use the information from these "events" to accurately conduct "price discovery?"

4. Is this a game only computers can play and win at these days?  Or can humans compete in this game on equal footing?  Is insider information necessary to win?

5. If I understand your meaning (from multiple posts), these kinds of shenanigans cannot alter a long term trend based on fundamentals. So are you saying these shenanigans are just the "wiggles" within the medium and long term trend?  If that's what you're saying, then an investor would be wise to ignore these "wiggles," focus on the fundamental trends, and invest for the long term, right?

Tom

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davefairtex
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illegal, unethical, etc

Jim, Tom-

First Jim.  Of course the regulators are involved.  They're allowing such things to happen.  Position size limitations might be helpful.  The Fed (in that its a regulator) is involved too.

Jim, your main claim was that it wasn't profitable, and that it was non-economic behavior, and thus it must de facto be a central bank player.  Do you understand now that in some circumstances, it can be quite profitable?  That opens the door to participation from everyone with a computer and enough margin money.  There is no need for Occam to insert a Central Bank Player into the explanation.

Next Tom.

I have no idea if its illegal.  It probably is under some definition of "attempts to deliberately move the market" - there are too many laws for me to know them all, especially the ones that don't apply to me.  :-)  It does seem really unfortunate, and it definitely discourages me from participating in the market.  It likely reduces liquidity.  I am very careful where and when I jump in with futures, and I keep my position sizes small.

I believe that strategies that focus on daily charts seem a whole lot more reasonable, and that's where I put the bulk of my analysis time & energy.

Computer models are likely are required to analyse and estimate the number of stops at certain conditions.  I'm guessing there are models out there that, based on charts and past experience can guess how many stops there are and where they sit.  Support might be a chancier thing.  It still seems like a gamble, but maybe the models are good enough so that it is less risky than I imagine.

Stop-gunning has been around for a very long time.  It has just been honed to a fine art and it happens a lot more often, from what I can see.  Likely that's a result of it being more of a sure thing, given computer analysis of tick data - where trades were made and what the likely stop positions are.

Over the long haul, this bad behavior should net out.  These sorts of antics get markets to where they were going a bit more rapidly than otherwise, with a lot more volatility (and a good chunk of money gone into banker pockets) but it won't ultimately alter the trend.

To my mind, this is yet another banker/financial market skimming operation, no different than HFT, or the rigging of the LIBOR, etc.  They should all be restricted - somehow.  And that's why I say the market is manipulated, in both directions, to the benefit of the financial industry.

However, that's not the same thing as "Every Spike Down is Proof that Central Bankers Always Hammer Gold."

Do you see how those two things are distinct?

Again, I'm not saying "all is well."  It definitely isn't.

But when someone says "this behavior is non-economic" - they're wrong.  And when another someone says "this is proof of Central Bank activity" - well, I have an explanation that just requires a big bank account and a profit motive.  No Central Banker required.

I say, let's point the finger at the guilty party.

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Arthur2014
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Posts: 56
Gold: contango versus backwardation
davefairtex wrote:

1) Do you know what a stop is, and how it works?

2) Do you know where stops are generally placed?

3) Do you know who places these stops, and why?

4) Do you know what "stop-gunning" is, who does it, how it works, and why?

5) Do you have a sense of just how long the techniques regarding (4) have been happening in markets?

Some optional questions:

1) do you know what resistance is, what it is caused by, and how it manifests?

2) do you know what support is, what it is caused by, and how it manifests?

3) do you understand what happens when support - or resistance - breaks?

 

Dear Dave,

I cannot answer any of these questions. Where can I learn about them? Could you recommend me any book?

By chance I came across the peakprosperity website and I read some of your daily commentaries which I appreciate very much.

I am not an economist but I am working in analytic philosophy. Among other I am interested in questions about rational decision making under uncertainty / under incomplete information.

Traders are persons regularly taking risk.

 

Do you pay any attention to the aspects of contango versus backwardation concerning the price of gold?

Is the price of gold currently in backwardation?

 

For an explication of the two notions I read the following articles:

http://en.wikipedia.org/wiki/Contango

http://en.wikipedia.org/wiki/Normal_backwardation

 

Do you agree that backwardation indicates scarcity of the physical supply of gold?

 

There seems to be at least one proponent of a gold standard who takes (potential) backwardation of gold very serious: the 1932 born former professor of mathematics Antal Fekete.

(http://www.professorfekete.com/articles.asp)

I have no personal opinion about the topic.

 

As usual, things in the world are a little bit more complicate than one thinks at the beginning they were. Apparently one should not mix up the spot market price of gold in backwardation with a negative Gold Forward Offered Rate (GOFO)

For an explication of GOFO I read:

http://seekingalpha.com/article/1542652-what-gofo-is-and-why-its-now-very-bullish-for-gold

 

At least I found an article written by Brad Zigler in November 2008 who states:

“A negative forward rate does not automatically create a backwardation in the Gold Price

His article is available via the following hyperlink:

http://goldnews.bullionvault.com/gold_forward_rates_backwardation_112620083

title: Gold in Backwardation?

published: Wednesday, 11/26/2008

“Did Gold Prices just go into backwardation? What is a gold forward rate anyway...?”

 

I would like to hint so some entertaining non-fiction books for laymen from which I learned quite amazing things about aspects of our world I had never thought about before:

Aaron Brown:

The Poker Face of Wall Street; 2006

  ISBN-10: 0471770574

  ISBN-13: 978-0471770572

 

Daniel Kahnemann:

Thinking, Fast and Slow; 2012

  ISBN-10: 0374533555

  ISBN-13: 978-0374533557

 

William Poundstone:

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street; 2006

  ISBN-10: 0809045990

  ISBN-13: 978-0809045990

 

Didier Sornette:

Why Stock Markets Crash: Critical Events in Complex Financial Systems; 2004

  ISBN-10: 0691118507

  ISBN-13: 978-0691118505

 

Nassim Taleb:

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets; 2005

  ISBN-10: 0812975219

  ISBN-13: 978-0812975215

 

Nassim Taleb:

Antifragile: Things That Gain from Disorder, 2012

  ISBN-10: 0812979680

  ISBN-13: 978-0812979688

 

and finally a rather scientific collection of and papers:

John Smithin (editor):

What is Money? (Routledge International Studies in Money and Banking); 1999

  ISBN-10: 0415407079

  ISBN-13: 978-0415407076

 

Please understand my bibliographic hints as an attempt to contribute something to this thread.

Best regards

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