WSJ report on recently started investigations of PM trading by some banks

theordore
By theordore on Wed, Feb 25, 2015 - 12:45pm

     Should retail investors either avoid or stop trading silver and gold ETFs, and  leave that game for the Big Boys who are super sharks?  I state this stupid-looking question to try stimulate a discussion on how best to set up strategies and implement executions in an environment where (according to the WSJ) the Justice Department and another agency have begun investigations of PM trading activities by 10 banks.  (I don't mean to say the investigations are the reasons for my question.  They point to those reasons.)
     I feel it is not fruitful to start another debate over "conspiracy theories".  Moreover, there are good reasons why confidence in alternative currencies needs to be managed. However, IF we have some special "Big Boy forces" moving and shaking the PM markets, should we not think about special procedures we should observe just to avoid losing our shirts from  the unusual price gyrations we are seeing frequently in the intra-day price patterns of gold and silver ETFs?
     One thing I would really love to see explained/clarified is the reference to "London fixes" that I see in the reporting on the WSJ article.  There is a suggestion that the "London fixes" are being distorted by some major bank traders.  What exactly are UNdistorted London fixes in PM pricing, and why do we need any kind of "fix" if prices are being set by the normal confrontation of buying and selling orders coming from all sorts of sources?   And if the "fix" is anything other than the usual confrontation between buy and sell orders, what does this say about the special features of the PM market?
  Sorry if these all are stupid questions from this PM Newbie; but I hope I speak for some others who feel a need to get 'special education' about *pricing drivers* in these PM markets, and their linked ETFs.  Where can I go to get in-depth literature to study about pricing patterns in these markets?

 Thanks in advance.

2 Comments

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Jim Rickards' hypotheses about gold price management

 Jim Rickards just recently laid out the case in favor of official management of price ranges on key PMs.  See “Why the U.S. is Letting China Accumulate Gold”, Daily Coin, March 2, at
http://thedailycoin.org/?p=20565#sthash.T9g0kGDg.dpbs
Why is this important for a retail trader?  That management establishes a range, and you are better of if you can get a handle on the probable boundary of that range.  Spotting that boundary with decent accuracy requires that your thinking go beyond conventional technical analysis that deals *only* with support and resistance zones established by studying past trading data.  
    Of course, the lower bound may not be of much interest to the officialdom, so tracking where price dips tend to stop (including the associated volumes) may be a good way to sense the size of the private buying pressure in selected periods.
    Also, over protracted time we should expect to see that the policy-influenced upper bound shifts, perhaps in response to persistent strength/weakness in buying pressure; but always with a view to preserving what management feels is orderly price movement, in the interest of preserving confidence.  This means that the retail trader should not be complacent about the current location of the boundary.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
rickards on PM management

See, what Rickards says would make great sense, if it weren't for the steady dropping of commodity prices, and the total lack of inflation symptoms which drives western gold buyers.  We don't need to conjure up this  "PM Management" factor to explain the drop in gold prices.  The current state of no inflation - or rather, worldwide commodity price deflation - is quite sufficient to explain the ongoing gold downtrend.

Let's assume "PM Management" is going on.  It is a trivial matter to successfully "manage prices downward" once the buyers have largely evaporated.  One might argue, such management is unnecessary - even superfluous.

Likewise, if you read the Rickards article carefully, he points out that the US sold gold all through the rally through 1980.  Did this gold-selling manipulation work in the teeth of an uptrend?  Absolutely not.  Presumably the same thing happened through 2011.  Did "PM management" work in the teeth of the 2001-2011 uptrend?  No it did not.

So - yes, we can say that the vigorous PM manipulation is working fantastically.  Marvelous policy success.  The geniuses have successfully managed the price of gold lower - right in the middle of a downtrend, in a condition of deflation, after most of the western gold buyers vanished.

My thesis is: no inflation = no western gold buyers.  No western gold buyers = gold remains in a downtrend.  Asian buyers by themselves are not strong enough to move price higher in an international market.

Once westerners have a reason to buy gold, that will all change.  And no amount of "PM Management" will be able to stop it - just like they couldn't stop it in the 1970-81, or from 2001-2011.

That's my story anyway.

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