PM Daily Market Commentary - 10/7/2015

davefairtex
By davefairtex on Thu, Oct 8, 2015 - 1:11am

Gold fell -1.80 to 1145.00 on moderate volume, while silver climbed +0.16 to 16.05 on moderately heavy volume.  Gold moved mostly sideways all day, hitting a new high of 1153.60 but failing to keep the gains by end of day.  Silver moved steadily higher, closing above its 200 MA for the first time since May.

Gold may be running out of gas.  It was unable to move above its downtrend line, and it also could not muster enough power to even test the previous high at 1157.  I'm a bit concerned that gold will form a lower swing high here with a close tomorrow below 1141.

Silver rallied for a fourth straight day, closing above its 200 MA for the first time in 5 months.  Silver is on a tear, and my guess is, it is the shorts that are paying most of the cost of this upside move.  At some point the shorts will be all gone - I'm starting to see declining volume and that may be our first hints of this.

As I write this, the shorts have struck in Asia trading, hitting silver for a 30 cent loss.  If the spike down gets bought, it will just reinforce the sense of strength in silver and it would be quite bullish.  If not - we probably go lower from here.

Miners took a rest today, with GDX off -0.45% on moderately light volume, and GDXJ down just -0.05% on light volume.  Light volume down days are nothing to worry about, however if GDX marks a swing high, that could lead to a fair amount of selling and a correction.

The USD traded mostly sideways within a range today, rising just +0.02 and closing at 95.58.  Tomorrow we have another bit of data from the FOMC - the minutes release from the most recent meeting.  Sometimes the minutes end up moving the market as some surprising detail is revealed, although this meeting was held prior to the dreadful Nonfarm Payrolls report.

SPX rallied right up to the 50 day MA today, climbing +15.91 to 1995.83.   A close above the 50 would be a bullish sign, but this is also a logical place for the shorts to start jumping in.  A failure to move above the 50 will likely lead to a move lower.  VIX dropped -1.00 to 18.40.

JNK staged another rally, climbing a big +0.95% and looking strong.  This supports a move higher in SPX.

Bond ETF TLT dropped a bit, falling -0.33% and mirroring the rise in equities.

The CRB made a new high, but ended up selling off, falling -0.27%.  It remains above its 50 MA, which is now mildly bullish, at least in the short term.

WTIC endured selling after yesterday's big gain, falling -0.91 to 48.13, but remaining above its old trading range of 44-48.  The selling started when the Petroleum Status report was released at 10:30 showing a bearish-looking inventory build.  Immediately after the report was released, oil promptly dropped almost a buck.

HAA has 100 oz gold bars right now in NYC at 1168.73/oz [+2.22% over spot], and 1000 oz silver bars in NYC at 16.24/oz [+3.57% over spot].  Eagles in NYC are quoted at 21.01 [+33.99% over spot].  Premiums on the big bars were little changed, and premiums on Silver Eagles dropped again today.

While silver continued higher today, gold and the miners may be showing signs of fatigue after their recent run higher.  On a positive note, my computer isn't suggesting any reversal yet for the PM space, but it is saying that SPX may have topped out here.

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41 Comments

davefairtex's picture
davefairtex
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migrant/refugee -> Slovakia exit

Article today (ref. Martin Armstrong) in German where the Slovak PM threatened that his country will exit the EU if the EU fails to stop the flow of refugees & migrants.

Google Translate isn't perfect, but you can get the general idea.

Concept is: refugee/migrants don't want to live in Slovakia, they want to live in Germany.  So how can the EU enforce quotas on the various countries?

http://www.contra-magazin.com/2015/10/fluechtlinge-slowakischer-premier-droht-mit-eu-austritt/

 

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Deutsche Bank warns of large loss

We've been warned...

Deutsche Bank warns of large loss

Deutsche Bank has warned investors it will post a net loss of €6.2bn (£4.5bn) for the third quarter.

----

There was also doubt about the value of its Postbank retail division that Deutsche plans to sell.

Germany's biggest bank also said the dividend for the year could be cut or scrapped.

The group was also setting aside €1.2bn for legal costs.

Deutsche is embroiled in the Libor-rigging scandal and is being investigated by Swiss authorities for suspected price-fixing on the precious metals market.

Analysts had expected a net profit of about €1bn for the third quarter before the unexpected announcement on Wednesday night.

The bank also wrote down by €600m the value of its 20% stake in Hua Xia Bank, which it also plans to sell as it was no longer considered to be strategic.

----

New chief executive John Cryan, who took over in July, is preparing to cut about 23,000 jobs - about a quarter of the workforce - in a bid to reduce costs, it was reported last month.

 

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Deutshe Bank smokescreen

They also vowed to be more realistic about what things are really worth.In other words,regulation has forced them to no longer boost the balance sheet with intangible assets.Translation-they must stop lying or face massive fines.Considering every month the are faced with a new rigging scam,they are looking to minimize losses...

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Deutsche Bank buy the rumor, sell the news?

In spite of the press release on losses linked by Mark above, the bank's stock, DBK.DE, traded in Frankfurt, is up a bit today.  Also, it hasn't had any dramatic plunges or booms since its big fall after the financial crisis in '08:

Yet, looking JP Morgan Chase has been a part of the growth of stocks since 2009 during the same time period:

I thought maybe that German stocks just hadn't been part of the market's boom of the last three or four years, but that's not the case either.  The DAX has done well:

So, I was wondering if Deutsche Bank still has that much further to fall.  Is this a bellweather bank for some type of a European bond crisis and/or derivatives crisis?

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Financial weapons of mass destruction

Considering the bank has 75 trillion worth of outstanding derivative bets and the latest admission of losses are being forced upon them by new regulations, going near this bank would be a very bad move.Financial institutions around the world are probably crunching numbers at this very moment.The potential losses on Volkswagen coming down the pike alone should cause extreme concern.The german export  trade numbers were released today and they are down 5.2%,the weakest since the financial crisis.Behind that number are companies faced with real problems...Stock prices are based on future earnings and nothing positive pointing to growth is on the horizon...

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Silver shenanigans (again)

Yes, it will take a lot to convince me that these mid-night raids on silver are anything other than obvious, gross efforts at price manipulation.

That they are, so far, 100% of the time bear raids, only adds to my suspicions.

Alternatively, we can suppose that thousands of individual "investors" suddenly decided that 11:00 p.m. EST was the right time to unload several thousand silver future contracts.

You know...becauase that's the best way to get the best price when you want to exit your long positions.

Equally odd, is that these slams always manage to set the new price even though the market is super thin, and the volume, while overwhelming for the time slot, is not huge compared to the normal trading hours.

It's as if cattle for sale in Hawaii suddenly sold for $400/head less late one night and all the ranchers in the American west woke up to discover that their cattle were now also worth $400/head less.

I'm still confused as to why it is that the silver market can (and regularly does) operate this way....it just stinks to high heaven.

Of course, when you live in a country that bombs hospitals with children and doctors inside, killing 22, and then brushes it off as justified because there were allegedly Taliban fighters nearby, there's no chance of any sort of regulatory investigation of such a petty crime as manipulating a small metal market.

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How Much Derivative Exposure does Deutsche Bank Have?

Only about 20 times the total GDP of Germany!

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Edwardelinski
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The start of a European banking crisis?

It certainly looks that way.Credit Suisse just announced they need to raise fresh capital in order to curb losses associated with a faster restructuring of the bank.Nice public relations spin on it.Deutsche Bank will be able to suspend the dividend payment,Credit Suisse cannot.Expect more of the same over the next few weeks and months.Considering both banks are the largest in there own countries and are not emerging market, this is very concerning.Let's hope lending will not freeze up....

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silver shenanigans

Its the usual short assault.  If all the potential buyers have already committed, then the assault works, since there is nobody with free cash left to buy the dip.  If there are buyers who were waiting for the dip, then the dip will be bought, and the assault will fail.

I also saw diminished volume yesterday, which was a bit of a warning sign.  Buyers were starting to fade, or that's my sense anyway.

This isn't some magic power - clearly it doesn't always work, or else that second short assault would also have just set price at the new level.  But that's not what happened - silver rebounded off the second loss relatively strongly.

If the uptrend is strong enough, assaults won't work.  If the uptrend isn't strong enough, assaults will work.  After a five year downtrend, expecting that the shorts won't have the run of the place seems...well I dunno.  Maybe it just seems unsurprising to me.  Bulls are easily startled out of their positions, while the bears are trained to jump on any weakness.  Isn't that the essence of the mental state of both groups after a five year downtrend?

 

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Does it really matter who is doing the manipulation?

Dave,

Who has the power to accomplish the "usual short assault"? Can this be accomplished along similar lines of 'running of stops'? I get that if you can cause a big enough price move then you can cause stops to be triggered and traders will automatically exit their positions (while they sleep), but is the same thing possible with shorts? I get your explanation that this is a short attack and may not be outright central bank manipulation, but can you better explain how stuff like this happens in a matter of minutes? Thanks. 

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Missing the point on Deutsche Bank?

In that article about Deutche Bank they say

Deutsche Bank has warned investors it will post a net loss of €6.2bn (£4.5bn) for the third quarter.

However, at the end of the article it states

Deutsche Bank is due to publish its full third-quarter results on 29 October.

The point is to manage expectations. They are setting the expectations low with their warning, "Things are bad but not as bad as you were fearing". More than likely they already know it will likely be even worse when they do the full reveal on Oct 29, "Things are bad, even worse than you were fearing". If it comes in at €12bn at the end of October then it is a second step down on already poor expectations versus an out of the blue €12bn on positive expectations.

Analysts had expected a net profit of about €1bn for the third quarter before the unexpected announcement on Wednesday night.

Right now the rats are looking for an escape or somewhere to shift the blame.

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Too much time in the trenches?

Dave,

You are great at explaining how these things happen and even why they might be doing so in the markets but I am always left wondering:

1. Do these slams happen in all of the markets? Is this just standard operating procedure for everything or are the PMs special?

2. Assuming it is just the SOP, will the slams all shift to being middle of the night 'Bull raids' once an uptrend does get established? Is that what happened before?

3. Any chance that you've been in the financial trenches so long that you don't remember what 'normal' is anymore? Just because the insane asylum always works this way now that the lunatics are running the place doesn't make its rationale sane even if it is coherent. I get that this is just the way thing are at the moment but, in an increasingly hard to remember world of law and order, should they be allowed to do so if regulations actually meant anything?

Thanks for tirelessly trying to explain these matters,

Mark

 

 

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anatomy of a short assault

lambertad-

If I want to go short a COMEX silver contract, it costs me $6000 in margin to do so.  That controls 5000 oz of silver.  Each $1 in price movement nets me $5000.  (If the market goes against me, I need to pony up enough margin to cover the price move).

So if I wanted to assault the market during the Asia trading session, similar to what happened earlier today, let's say I hit the market with 2000 contracts all at once.  Maybe that would be enough to snap support the way we saw - its hard to say for sure since I've never been in a position to do such things.  Opening 2,000 short contracts would cost $12M in margin.  Does this need to be The Fed with trillions of dollars in balance sheet behind it?  Clearly not.  It can be just a small hedge fund that wants to see if it can maybe run some stops and collect a few million dollars as its reward for pushing price around.  It shorts at $16, pushes price down to $15.50, it covers some on the way down as the stops get triggered and then ever so slowly covers the rest at $15.50.  That's a $5M payday (2000 contracts x 5000 oz/contract x 0.50/oz price move) for one hour's work.  Or, a $5M / $12M  = 41% ROI.  High risk, but high reward.

If however the bulls are waiting for lower prices to buy the dip, our friendly hedge fund will not be able to cover so easily, and if price rallies too far, our friendly hedge fund will end up losing money on the deal!

Friendly hedge fund has to be careful when it plays this game.  It has to wait until the rally enthusiasm has faded a bit, but the price is still extended.

This doesn't seem to be a particularly tough game to play if you have enough money, and a computer than can help automate the process.

Of course it could be just a massive ongoing plot to hose the goldbugs, but given the mechanics are fairly straightforward and the pricetag for playing this game isn't very high - and the rewards are considerable - does it really have to be a bullion bank conspiracy every single time?

 

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different markets

Mark-

Different markets definitely have different behaviors.

The oil market seems a lot sturdier; my sense is, there is a shit-ton of money behind it, and as a result it is quite difficult to wang it around in the same sort of way.  If you were to hammer the price down, some fundamental participant in that timezone who actually needed to take delivery of oil would look at this as found money.  And my gut tells me, just based on trading over the past few weeks, "somebody" is standing ready to buy oil below 44.  No spikes below 44 have lasted very long.

Natgas (US) seems more fragile, especially in the off hours.  I've seen it get pounded similar to gold and silver, although so far not as dramatically.  Perhaps there aren't as many stops to run so the rewards aren't as high - and the volume is lower so the ability to cover after your assault is also lower - but there is definitely plenty of game-playing.

The e-minis can be moved around, but I don't see anyone trying to run stops in the same sort of way.  Again, I think there's too much money and too many players in every timezone to get away with it.

I don't track more than these five futures contracts on a regular basis.  I watch copper, 30-year treasury bonds, and DX but not as closely.

I could spend some time and do a study and see how many high-volume spikes during non-US trading hours there are.  I have 1-minute data dating back to 2009 for 38 different futures contracts.

 

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Thanks

Dave,

Thanks for taking the time to explain. Even if it took 4,000 contracts to drop the silver price by .50 cents we are still talking a measly $24 million and a 20% ROI. So, basically anyone hedge fund with a few billion laying around can play these games whether they have a long term strategy or not. I guess I'll just keep stacking while the prices are low knowing that this sort of thing can't go on forever.... at least I hope not. 

Adam

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Deutsche Bank and Exposure to Greece?

I have often wondered if the reason that Wolfgang Schauble  was so hard on Greece over its debt negotiations, is that, as German Finance Minister, he knew that the exposure of Deutsche Bank in some way to Greece was (is?) so huge that the only solution from the German position was (and is) to extend and pretend that the Greek debt is good.   For the German Government there was no alternative.

Richard

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measly 24 million

lambertad-

Yeah, that's my thinking.  You know, it could well have started out as some tool for the big guys to manipulate prices, and after observation, the little guys found out they could make money with it also.

I'm digging into the details of after-US-hours spikes (both up and down) and I'll report what I find.

 

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Time to bring up leverage
lambertad wrote:

Dave,

Thanks for taking the time to explain. Even if it took 4,000 contracts to drop the silver price by .50 cents we are still talking a measly $24 million and a 20% ROI. So, basically anyone hedge fund with a few billion laying around can play these games whether they have a long term strategy or not. I guess I'll just keep stacking while the prices are low knowing that this sort of thing can't go on forever.... at least I hope not. 

Adam

That's the simple math.  However, the point of slamming the futures is because of the leverage they provide...and not just the leverage within the future contract itself, but the leverage it applies to the entire cash, options and related equity markets.

Back in 2013 when I was trying to understand all this, I talked with the guys at NANEX about a very particular slam in the WTIC oil market that happened in less than 1 minute...and here's a relevant piece from my podcast with Erik Hunsader:

I had this chance to review some data that you provided about a specific set of trades I was interested in. It happened over just a few minutes on September 17th, 2012. It involved the oil markets. I was interested in the main crude oil futures contract and I was watching oil plunge a little bit more than three bucks in about a minute starting at about 1:54 pm on that day.

Volume spiked to twelve thousand five hundred contracts where normal contracts might be maybe five hundred. And as you showed in your data though it wasn’t just that front month oil contract that I was interested in but the associated ETF USO options, and looking into other markets, gold got involved, copper, even the Euro, all got swept up in this storm. 

The idea here is that it's not some small-time, lonely hedge fund banging silver contracts for the few bucks they can grab during that maneuver.  Instead you would need to understand their larger frame of positions which could easily include options, ETF shorts, silver producer shorts, and even unrelated but correlated things like other metals and even currencies (as with the Yen and gold).

So imagine that a big player has staked out huge positions in silver puts, ETF shorts, silver miner shorts, and even gold shorts and possibly a dozen other things, and THEN slams silver futures with an eye towards reversing all sorts of other positions.  I submit to you that the gains on the futures themselves is only the gravy, not the meat.

Let's go even further an assume that these hedgies and big banks all talk to each other, like they did for LIBOR (among a dozen other major crimes involving market conspiracies), and it's not just one lone outfit  banging on silver, but a more coordinated affair that makes it hard to stand in the way of for other 'non-insider' investors...

Now we are beginning to actually understand how these ""markets"" actually function today.

Yes they are this broken, and we've know this for a long time...

Why do they do this?  Because they make money at it and the "regulators" have agreed not to investigate.  Wall Street is a gigantic fraud, but I think it's just mirroring society rather than corrupting it.

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leverage is a leveler

Chris-

My point is that if the cost to hammer a particular market is $12 million dollars, it enlarges the suspect list to every Tom Dick and Harry who has a computer and F-U money to play with.  Suggesting that, because a hammering takes place it must be a bullion bank, or an official manipulation attempting to change the trend, or it must be part of a vast complicated plan to move prices of everything around, just strains credulity.

Guy dies of a gunshot wound.  If guns cost a half a trillion dollars each, that narrows the suspect list a great deal.  If on the other hand guns are $300...basically it could be anybody, doing it for any reason, and suggesting that it must be that trillionaire standing in the corner...  That's all I'm saying.

It might be the trillionaire and an elaborate plan.  Or it could be anyone else with a grudge and $300.

I'm sure what you described in your post takes place.  The stock in trade of the banksters these days is to hammer markets at strategic moments for a short period of time in order to move them enough for options to expire worthless, or in the money, and so on.  Hopefully they'll keep on getting caught and prosecuted for all of it.  The sum total of the opprobrium will add up.  Next time around, it will make it a whole lot harder for them to be rescued with taxpayer dollars.

In none of the cases have banks been accused of setting prices to be what they want for periods of time longer than a day.  Its all intraday/EOD stuff.  Please correct me if you know differently.  I'd be interested to see what they did, for how long, and how they did it.

I do think with the oil markets there is the potential for sovereigns to be involved, since the price of oil is so critical to the revenue streams of those entire countries.  That price support at 44 sure looked strong.  Could some nation have thrown some chunk of its sovereign wealth fund at WTIC futures to keep price from dropping through the floor?

Note however that for whatever reason, the price drop was impossible to halt until it hit the 40s.  Perhaps there was a wealth fund shorting on the other side of the trade.

I'd love to peek behind the curtain and see how everything netted out.

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Market manipulation can and does happen for very long times
davefairtex wrote:

(...)

In none of the cases have banks been accused of setting prices to be what they want for periods of time longer than a day.  Its all intraday/EOD stuff.  Please correct me if you know differently.  I'd be interested to see what they did, for how long, and how they did it.

(...)

Well, let's see here.

I accuse the Federal Reserve of setting the price of short term money at zero for six years, going on seven.

Further I accuse the Federal reserve of setting the long bond trend for the past 4 years at a level far below where it would have otherwise been due to operation twist, etc.

I could go on and on, but I'll just make one more case on the LIBOR scandal.  I'm not sure what your horizon is to qualify for "a long time" but 'since 1991' makes it in my book:

On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991.[8]

On 16 April 2008, The Wall Street Journal released a controversial article, and later study, suggesting that some banks might have understated borrowing costs they reported for the Libor during the 2008 credit crunch that may have misled others about the financial position of these banks.[24][25] In response, the BBA claimed that the Libor continued to be reliable even in times of financial crisis. Other authorities contradicted The Wall Street Journal article saying there was no evidence of manipulation.

In its March 2008 Quarterly Review, the Bank for International Settlements stated that "available data do not support the hypothesis that contributor banks manipulated their quotes to profit from positions based on fixings."[26] Further, in October 2008, the International Monetary Fund published its regular Global Financial Stability Review which also found that "Although the integrity of the U.S. dollar Libor-fixing process has been questioned by some market participants and the financial press, it appears that U.S. dollar Libor remains an accurate measure of a typical creditworthy bank's marginal cost of unsecured U.S. dollar term funding."[27]

A study by economists, Snider and Youle, in April 2010, however, corroborated the results of the earlier Wall Street Journal study that the Libor submissions by some member banks were being understated.[28] Unlike the earlier study, Snider and Youle suggested that the reason for understatement by member banks was not that the banks were trying to appear strong, especially during the financial crisis period of 2007 to 2008, but rather that the banks sought to make substantial profits on their large Libor interest-linked portfolios.[29] For example, in the first quarter of 2009, Citigroup had interest rate swaps of notional value of $14.2 trillion, Bank of Americahad interest rate swaps of notional value of $49.7 trillion and JPMorgan Chase had interest rate swaps of notional value of $49.3 trillion.[30] Given the large notional values, a small unhedged exposure to the Libor could generate large incentives to alter the overall Libor. In the first quarter of 2009, Citigroup for example reported that it would make that quarter $936 million in net interest revenue if interest rates would fall by .25 percentage points a quarter, and $1,935 million if they were to fall by 1 percentage point instantaneously.[31]

Central banks aware of Libor flaws

The Governor of the Bank of England, Mervyn King, by the end of 2008, described the Libor to the UK Parliament saying "It is in many ways the rate at which banks do not lend to each other, ...it is not a rate at which anyone is actually borrowing."[32][33]

The New York Federal Reserve chose to take no action against them at that time.[34][35] Minutes by the Bank of England similarly indicated that the bank and its deputy governor Paul Tucker were also aware as early as November 2007 of industry concerns that the Libor rate was being under-reported.[36][37] In one 2008 document, a Barclays employee told a New York Fed analyst, "We know that we're not posting an honest Libor, and yet we are doing it, because if we didn't do it, it draws unwanted attention on ourselves."[35]

Regulatory investigations

The Wall Street Journal reported in March 2011 that regulators were focusing on Bank of America Corp., Citigroup Inc. and UBS AG in their probe of Libor rate manipulation.[40] A year later, it was reported in February 2012 that the US Department of Justice was conducting a criminal investigation into Libor abuse.[41] Among the abuses being investigated were the possibility that traders were in direct communication with bankers before the rates were set, thus allowing them an unprecedented amount of insider knowledge into global instruments.[42] In court documents, a trader from the Royal Bank of Scotland claimed that it was common practice among senior employees at his bank to make requests to the bank's rate setters as to the appropriate Libor rate, and that the bank also made on occasions rate requests for some hedge funds.[43] One trader's messages from Barclays Bank indicated that for each basis point (0.01%) that Libor was moved, those involved could net, "about a couple of million dollars."[42]

The Canadian Competition Bureau was reported on 15 July 2012 to also be carrying out an investigation into price fixing by five banks of the yen denominated Libor rates. Court documents filed indicated that the Competition Bureau had been pursuing the matter since at least January 2011. The documents offered a detailed view of how and when the international banks allegedly colluded to fix the Libor rates. The information was based on a whistleblower who traded immunity from prosecution in exchange for turning on his fellow conspirators. In the court documents, a federal prosecutor for the bureau stated, "IRD (interest-rate derivatives) traders at the participant banks communicated with each other their desire to see a higher or lower yen LIBOR to aid their trading positions." The alleged participants were the Canadian branches of the Royal Bank of Scotland, HSBC, Deutsche Bank, JP Morgan Bank, and Citibank, as well as ICAP (Intercapital), an interdealer broker.[44]

Breadth of scandal becomes apparent

By 4 July 2012, the breadth of the scandal was evident and became the topic of analysis on news and financial programs that attempted to explain the importance of the scandal.[45] Two days later, it was announced that the UK Serious Fraud Office had also opened a criminal investigation into manipulation of interest rates. The investigation was not limited to Barclays.[46][47] It has been reported since then that regulators in at least ten countries on three different continents are investigating the rigging of the Libor and other interest rates.[48][49] Around 20 major banks have been named in investigations and court cases.[50]

Early estimates are that the rate manipulation scandal cost US states, counties, and local governments at least $6 billion in fraudulent interest payments, above $4 billion that state and local governments have already had to spend to unwind their positions exposed to rate manipulation.[51] An increasingly smaller set of banks are participating in setting the Libor, calling into question its future as a benchmark standard, but without any viable alternative to replace it.[52]

(Source - WIKI)

What are the main elements here:

 

  • Huge leverage that translates into big bucks for big banks
  • Absent proper regulatory oversight, they will 'set the prices' where it best suits their book of business.
  • The price setting is about setting prices where the banks make the most money, not 'where the trend is'

To me this is not looking for boogey men where none exist, but simply noting that banks have been caught rigging or cheating at or in:

  • Gold
  • FOREX
  • LIBOR
  • Running drug money
  • Enabling tax evasion
  • Selling toxic CDO while also shorting the same
  • etc...

In short, everything that banks can have rigged they have rigged.  Anything they can do to make a buck, they will do, including manipulating markets so severely that an honest 'trend' cannot even exist.

I would never dream of trying to trade silver or gold because I know that those ""markets"" are nearly 100% controlled by market riggers.  It's just a fact of life.

And, yes, I think it's important for people to know the 'rules of the game.'  Best to be clear-headed about the card game you've joined than hopeful it's somehow become free and fair between the last rigging episode and when you sat down.

Are markets just too big to be rigged?  nope, not based on the largest and most liquid of them all (by far), the FOREX market:

Euro-U.S dollar traders at Citicorp, JPMorgan, Barclays and RBS — self-described members of the cartel — used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates of the two currencies in ways that benefited their own trading positions, prosecutors said.

"By agreeing not to buy or sell at certain times the traders protected each other's trading positions by withholding supply of or demand for currency and suppressing competition in the FX market," the Department of Justice said.

(source

It's that last part about 'suppressing competition' that I want to draw everyone's attention towards.  I believe the same is now true in silver, and gold and a number of other very key, very important markets.

By brazenly rigging the game, you drive away honest tgraders...the sort who might set a trend.

If you disagree with this assessment, then please explain the withering of trading volume over the years.

My explanation is that people like me no longer play the game. 

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Chris, thanks for adding your input.

Chris and Dave,

What you guys are saying makes a lot more sense to me now. It's no surprise to me that I was thinking over simplistically about the ""markets"" because I really don't have the experience that you guys do. So, in other words, we're talking about hitting the silver market with 20 million bucks, and producing a return in just the short contracts of around 20%. Layer in all of the stuff that Chris is talking about and we're talking a return of a couple hundred percent. I think this is the first time that I've realized just how much money is to be made off of this sort of thing, and we're only talking about the silver market. After reading The Big Short, I have zero faith in the big banks and I know in my heart of hearts that they are all involved in some way or another. For evidence of this, just look at all the rigging scandals they've paid fines for in the last 5 years. On top of that, it's not just one big bank that gets slammed with fines, when they get caught all of them get caught together. It's easy to say where is the proof, and that's why these guys aren't all locked up, because they don't want to find the proof. I'm going to re-listen to the NANEX podcast. Thanks again Chris and Dave for taking the time to explain these things. 

Adam

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invalid silver prices?

Chris-

Ok, so what I hear you saying now is that, because a small hedge fund is able to run stops in the Tokyo market for the lordly sum of $24 million dollars, now the current market price for silver is not valid - that it has somehow been "rigged" permanently into place by the sneaky banksters in charge through shooing long-side participants out of the market.  (Its not the 5-year downtrend that did this - its the stop-gunning).  Did I get that right, or is that an oversimplification?

Assuming my conclusion-jump is accurate, let's go a step further.  Were it not for all this stop-running, what would silver's "correct" price be?  (This is a standard goldbug talking point - "if not for the big bad banksters, gold's true price would be ... $5,000 per ounce", etc).

Historically, silver (and gold) exists in a web of inter-relationships with the rest of the commodity space.  If silver's price has been successfully and semi-permanently rigged by our sneaky banker friends through repeated stop-running, and the prices of other things - really important real physical things - have not been rigged, then silver should be underperforming the others by some large amount.  That's only logical, right?

Here's the thing.  While silver has dropped in price, its ratios to other commodities remain well within normal ranges.  And its pretty clear that copper (for instance) is very heavily dependent on China's usage and actual supply & demand, rather than any concerns over trend manipulation via 10 am Tokyo stop-gunning attacks.

During deflation, silver drops.  During boom times, silver rises, even goes nuts.  I see this storying playing out today just as normal, regardless of all the stop-gunning that happens at 10 am in Tokyo.

My consistent takeaway based on all the evidence of the whole system - not simply viewing the world through a collection of disagreeable-looking intraday charts - is that the commodity trend hasn't been successfully rigged.  And that by extension, neither have the prices of gold and silver.

Gold and silver don't exist in a vaccuum.  Goldbugs think they do, but that's not reality - and it hasn't been since gold was demonetized in 1971.

That's not to say the silver market isn't a total snakepit.  It is.  I avoid it too, for just the reasons you talk about.  Who wants to have your stops run when you are supposed to be at home relaxing?  But somehow, that hasn't resulted in a successful trend manipulation.  That's what my evidence shows, anyway.

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Time2help
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Game over
cmartenson wrote:

If you disagree with this assessment, then please explain the withering of trading volume over the years.

My explanation is that people like me no longer play the game. 

Eliminate tertiary wealth whenever/wherever possible. Period. Never put another penny into the "financial" markets. It's a fractional system.  Once enough people wise up and quit playing the game, it's game over.

Sir Josiah Stamp, minor edits mine wrote:

"Banking was conceived in inequity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with the flick of the pen they will create enough money to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in.

But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money."

Every dollar in "the market" enables.

 

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LIBOR vs trend manipulation

Chris-

Last thing.  The goal of a trend manipulator is to set the market price to be whatever you want it to be via market operations, permanently.

The effect you describe - at length - where a bank lies about its LIBOR rate, is definitely not the same thing.  LIBOR rigging was an artifact of the LIBOR price-setting system.  Its as if individual banks could essentially vote on the price of silver, no trading required.  Guess what?  They got together and scammed the system; one bank, one vote.  What a deal.

But wanging around the poorly-designed LIBOR system by getting your friends to lie is not the same thing as moving the price of gold to wherever you want it to be, and keeping it there.

Sure, you may WANT to set the gold price because you're an evil banker, but the techniques and requirements of execution are vastly different, because the underlying systems are vastly different too.

Anyhow, its apples & oranges.  The case doesn't apply - except perhaps to underscore banker willingness to hose anyone and everyone in sight for a long period of time, which is certainly not something you have to prove to me.

Now, if you can show me successful trend manipulation based on market activity where price was set over a long period of time, that will be a case that's on point.

[I actually think there was one - something about Goldman Sachs, aluminum, warehouses, stretching out deliveries, etc; that's the one case that comes to mind.  That's when they had a stranglehold over a particular commodity, if I recall correctly.  More examples of God's work.]

 

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Got it

Got it!

I have listened to the DaveF vs Chris (and Jim H) debate for a while and kept scratching my head thinking WTF.   I think I’ve got it.

First the background:

Two people lie on a hillside looking up at a patch of night sky that peeks through the tree canopy.

  • One:  “What do you see up there?”
  • Two:  “A great bear, striding across a meadow!”
  • One:  “What!?!?  No!  It is a spoon!  The one we use to dip water from the well”

Both are looking at the same patch of sky but see different things.

The difference is based on 3 things:

  1. What stars (“facts”) are included
  2. What stars are excluded
  3. What is the organizing story.

 

Everyone is always free to have their own organizing story—that is, what seems to be “true” to them.  But not all organizing stories are equally robust, complete and flexible.  (Which is why we have these discussions—to improve the robustness of our own stories so that we can deal as effectively with life as possible.)

So here is my theory: 

DaveF’s constellation is organized around a central star called “the trend” which is envisioned as something that is natural and independent.  Perhaps something like rainfall, gravity or the current sweeping down a great river.  “The Trend” is a pure thing, like an absolute truth.  “The trend” exists independent of the activities of humankind.  He watches the trend to see what it tells him.  Generally, DaveF argues, with great intelligence and articulateness, against all suggestions that humankind is able to deliberately or effectively change “the trend.”

Chris, Jim H (and most others here) articulate a constellation in which "the trend" is affected by “coordinated networks of players”.  This model includes the “deep state.” It is organized, effective and powerful (though not all powerful).  It is, alas, a conspiracy theory.

This model emphasizes that “the trend” is dependent on geopolitics, warfare, currency warfare, resource stripping and an organized effort to guide public thinking by media owned by the “deep state.”

A good metaphor might be the impact of human beings hunting wolves on the course of the rivers of Yellowstone National Park. It turns out that the paths of rivers were not so independent, after all.

Or the profitability of the banking and private prison industry due to the combined effects of the military/CIA/organized crime joint project of importing $500B drugs from Afghanistan while the DEA conducts (and gullible public buys into) the “war on drugs” motif.  It is a complex system and organized networks of player participate and do their dammedest to direct "the trend" to their advantage.  Deception is a primary tool.  (Deception and gullibility are the two sides of one coin.)

And how would “the trend” be altered were 20 or so cruise missiles launched into the oil loading stations of Saudi Arabia? 

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How We See The World

Sand Puppy's observations are spot on, and the "reality" that we exist in right now is that most people are still willing to accept paper currency and computerized debt, etc....because that is the world we have lived in.  Hell, it was the world I lived in for thirty years and because pretty much everybody still conceptualizes and accepts paper money value....it IS the world we all exist in.

I don't have or understand enough of the specifics to know, really, but Chris, Jim H, and Dave all seem to have a much better grasp on the trends, the big players, the market forces etc.

Chris's points in the crash course about making the choice to invest in "real" things is one of the main reasons why I've been buying physical when I can.  Are the markets totally manipulated?  I don't know.  Based on the amount of money some of the banks have been investing in physical silver, I would tend to think they know there is A LOT of profit to be made, along with any actual manipulation they carry out.

Anyway...it is about perspective and worldview....but based on the ability of the banks to take wealth from other people, to not really add much real benefit to society, and try and maintain this debt based reality....I have to fall on the side of their manipulating what is real as much as possible.  I mean by the very existence of a paper currency world, the value of something like physical silver is manipulated, its devalued. 

The stresses and the debt explored in the crash course were enough for me to change my perspective, for me to put some faith into something tangible; more real assets. 

Chris, Jim H, Dave....the back and forth you provide for the rest of us is truly educational.

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the trend - evidence in support

SP-

This model emphasizes that “the trend” is dependent on geopolitics, warfare, currency warfare, resource stripping and an organized effort to guide public thinking by media owned by the “deep state.”

And how would “the trend” be altered were 20 or so cruise missiles launched into the oil loading stations of Saudi Arabia?

Yes I think your understanding of my position is accurate.  I have one chart for you - evidence in support of my position, on point to your challenge.  Its the chart of oil during Gulf War #1.

Certainly, if the territory of Saudi Arabia was rendered uninhabitable (say, by radiation) and every oil well was destroyed, then certainly the trend would change.  But - we had a big kerfuffle over there, and if you can point out the trend change in the chart below as a result of that war - certainly a massive war is vastly more impactful than some sneaky buying of futures contracts, or some Deep State shenanigans - I sure don't see it.  Seriously.  The oil price chart continued right where it left off.

If you actually change the facts on the ground, then yes, trend changes.  But if you just play with the market, inject fear temporarily, and whatnot?  No.  Trend doesn't change.

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Can't see the wood for the trees?

Well I guess you'd better call me a gold bug then Dave - though I've never really thought of myself as one.

When gold and silver markets are repeatedly and consistently smashed to the downside over an extended period of time it seems completely reasonable to believe they're pushed far away from fair value. Markets are about confidence and confidence has been systematically eroded from PM markets as far as I can see. After a raid price  doesn't just recover back to a free market price - a knock down is a price reset. To me this is so obvious, such basic common sense, that I'd almost call it self evident.

I just do not follow your logic on this one. I wonder if you can't see the wood for the trees.

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hammer6166
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Why was gold allowed to rise?

One question I haven't seen answered is: "why was gold allowed to rise?"

My question is in response to statements that central banks, our overlords, etc. are in control of everything. Rising gold challenges these power's control.

There are recently released Fed minutes that indicate they watch gold prices. They do respect the message that gold sends. However, if they are all powerful, again, why was gold allowed to rise?

There is evidence that active manipulation exists in many markets, both in the short and long term. Chris listed many of them. Japan and China actively working to prop up stock prices are other examples.

For gold prices, I can fit a story that bankers are skimmers on the way up and on the way down. A story that bankers only suppress price is difficult to fit, at least given this 20 year graph.

Any explanations besides banks are skimmers?

 

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When will they reconnect?

Hammer,  Gold does not exist in a vacuum.  Gold vs total money is one thing to look at.  Actual demand is another.  Today price tells you nothing.. you have to find your bearings elsewhere.  Good luck.    

us-debt-debt-limit-gold.png

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Finally! Simple truth. Thank you DavidAllen!

DavidA said,

. Markets are about confidence and confidence has been systematically eroded from PM markets as far as I can see. After a raid price  doesn't just recover back to a free market price - a knock down is a price reset. To me this is so obvious, such basic common sense, that I'd almost call it self evident.

Self evident, indeed. 

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ah, common sense

Yes, markets run on your personal view of what is "self evident common sense."  And since that's true, trading is easy; we are all actually millionaires, sitting on the beach sipping margaritas, simply because markets move based on (linear) self evident common sense and are thus easy to understand.  A leads to B leads to C - buy D - we're rich!

But what if your "gut feel" about the world (in this particular case) is just wrong?  What then?

Anyone remember the almost-daily LBMA gold price manipulation?  Each and every day, gold was hammered down during the London trading hours during 15 minutes prior to the LBMA AM/PM fix, to the point where the price of gold when charted just during LBMA market hours actually lost money during the great gold bull market of 2000-2011.

Your self evident common sense viewpoint would conclude, gold must therefore also have been in a downtrend from 2000-2011.

But wait.  Actual price evidence (let's call that, "reality") shows that the price of gold actually rose 600% over that time period.  How can this be?   Either reality is wrong, and you are right - or just perhaps, self evident common sense isn't a very good guide as to how things actually work in this case.

Evidence says, the clear attempts to smash gold that happened almost every day simply had no effect at all on the long term trend from 2000-2011.  Self evident common sense said, if you push the ball below the surface of the water and let go, it will stay underwater.  But reality clearly said, pushing the ball underwater and then letting go resulted in the ball popping back up to the surface.  Likewise, attempts to suppress gold in an uptrend were completely ineffective - price popped right back up to trend in spite of the suppression.  Thats what the historical evidence tells us.

Evidence also shows that gold prices are correlated over the longer term with other commodities.  Commodities rise, gold rises.  Commodities fall, so does gold.  Over the past 4 years, commodity prices have been falling.  So has gold.  This is not a coincidence.  Its what gold has been doing since it was demonetized back in 1971.

The way I see it, when commodity prices turn, so will gold.  Either that, or a bunch of bail-ins will occur, confidence in the system will crater, and that will spike interest in gold.  But my view is not based on self evident common sense, its based on my observation of how prices move over time.

Ultimately, I prefer to go with evidence rather than "self evident common sense."  Sometimes, a single person's view of how a complex system works is incomplete, and so common sense ends up giving you the wrong answer.

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a really simple question

hammer6166-

One question I haven't seen answered is: "why was gold allowed to rise?"

My question is in response to statements that central banks, our overlords, etc. are in control of everything. Rising gold challenges these power's control.

There are recently released Fed minutes that indicate they watch gold prices. They do respect the message that gold sends. However, if they are all powerful, again, why was gold allowed to rise?

Yes, that's the question goldbugs never, ever, ever answer.  That's because there is no answer that fits neatly within their worldview.  When reality disagrees with the goldbug theoretical worldview, reality must be dismissed as rapidly as possible. You just saw Jim do it here.  He throws up a chart of something unrelated, and then says "good luck."  Translated, that says "I can't explain this event at all."

And this is why I look outside the Goldbug Canon for explanations as to why things happen.  Ultimately, a belief system in a super-powerful manipulation campaign that can never satisfactorily explain an 11-year 600% gain - far outstripping the S&P over the same timeframe - is missing some really critical components.

FWIW, I agree with everything else you said.  Back then, the Fed definitely did seem to care about what the price of gold was signaling.  Just - why was the price of gold allowed to rise?  For 11 years!  And a 600% move!!

It is a really simple question.

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My answer to 'that really simple question'
davefairtex wrote:

One question I haven't seen answered is: "why was gold allowed to rise?"

My question is in response to statements that central banks, our overlords, etc. are in control of everything. Rising gold challenges these power's control.

There are recently released Fed minutes that indicate they watch gold prices. They do respect the message that gold sends. However, if they are all powerful, again, why was gold allowed to rise?

The way I have answered this in the past is like this.

Most of that rise happened during Greenspan's tenure, and that upward trend was certainly established under him.  We know for a fact that Greenspan both tracked gold and understood the psychology of gold very, very well.

Everyone fights their last war.  What was Greenspan most worried about from ~2000 onwards?  The threat of deflation.

If you are a central planner and you could wish for something to send a 'proper signal' that deflation was not a threat, what would that be?

The simple answer is gold.

So they 'let' gold rise, by which I mean when they held the NYFed meetings and when the CEO's of JPM and Citi were in the room they let it be known that rising gold would be a good thing, and so it happened.  And I'll bet you anything that the banks in on that "change in trend" made big bucks doing it.

And gold rose, but not by any overly excessive amount during any short time frame that might indicate a 'loss of faith' in the system or the Fed.  The "2%" rule that capped gold's daily rise was well known in the gold bug community.

But then along comes Bernanke and he has a different constitution and a different set of problems.  He's about to embark on the largest money printing program ever and he needs to worry about how that will be received across the globe.  He desperately needs 'faith in the Fed' to be telegraphed.

To me a smoking gun is that fact that gold and other commodities began a long and sustained fall that began, I kid you not, the very month that QE3, the largest printing program in all of human history, began.

There the Fed had a different problem...there they were most worried about how their vast money printing efforts were going to be perceived and so they needed everything possible to be signaling that the ""markets"" both approved of and trusted their actions.

So equities needed to go up, bonds needed to go up and it would have been most helpful if commodities went down, but especially the precious metals.

Quite "luckily" for the Fed, all of these things happened.  

For those with a mind for coincidence theory, this was a golden time offering a target rich environment of happenings.

At any rate, gold going down in price, both steadily and sometimes violently, while the Fed printed more and more and more, and while interest rates were driven into negative territory  (real and then nominal) is an extraordinarily rare event in all of financial history.  Gold simply tends to rise, and quite strongly in such environments...but not this time, and not just for a few anomalous months, but for four long years (going on 5).

And, to top it all off, while all of this is happening, again quite luckily for Fed(!), the suppressed and falling price of gold proved so extraordinarily attractive to the east, that China alone ended up consuming 100% of world mine output with India gobbling up another 1000 tonnes, and other major consumers such as gold bugs, various central banks, and citizens all over the globe consumed even more.  The more gold fell in price, the more they bought!

To say that 'falling prices' and 'explosive rising demand' are a mismatch is putting it lightly.

But gold is different, and can be suppressed for a long time because out of all the commodities, it has the greatest stock vs. flow ratio, and the central banks are major holders of that stock.

Finally, how do repeated smashes of, say, silver set a trend?  Easy, it works like this.  Imagine you are building a new house in a town that is growing, with plenty of growing demand for new houses, but one night as your house is almost finished, a local mobster has his crew burn it down.  Nuts!

And then a week later another house is burned to the ground.  And then another.  But the 'trend' is for more people to want to buy more houses, and in a normal, less criminal world, those houses would be rising in price.

But night after night, those houses just keep getting burned to the ground.  So even though there are plenty of willing buyers, nobody is willing to pay full price.  Everybody is scared of the losses that could result because houses just keep burning down.  

So, why was gold allowed to rise in price?  Because it suited the central planners (at the time).

After 4-5 years of the houses being burned down, the price of houses in this town are actually quite suppressed.  And this even though the supply of houses is actually contracting and demand for them is growing!

And that's my tale for how burning just a few houses out of an entire town can set the trend for house prices for that entire town.  It's a psychological thing, not a question of supply vs demand.

And who knows about market psychology and tracks it very very carefully?  The Fed.  And of course their stock-holding member banks who both make the market and are known to collude and conspire all the time to burn down houses, er financial assets, to suit their mobster aims without regard to laws or morality. 

 

 

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davefairtex
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the simple question

Chris-

Most of that rise happened during Greenspan's tenure, and that upward trend was certainly established under him.

Ok, some simple fact checking first.  Below, find a chart with the price of gold, with the appropriately golden boxes representing the terms of each Fed chairman.  You tell me, did "most of the rise happen during Greenspan's tenure" as you claim?

Chris, I have the strong sense you have a story clearly in mind, and you have resisted testing the story against price evidence.  Literally the first words you wrote were simply not true, and then you launched off from there!  That's just not like you.

How about I write another story.  Year in, and year out, Greenspan simply didn't want gold to rise.  He successfully suppressed gold for his entire tenure, and came within about six months of keeping the price flat for his entire time in office.  Then along came Bernanke.  For some reason, he reversed the Greenspan position - he wanted gold to rally.  And rally it did.  Starting in 2006, the Bernanke Fed reversed the suppression scheme and instead manipulated the price of gold HIGHER, not lower.  It worked amazingly well.  Why did he want to completely reverse the Greenspan policy?  I have no idea.  The Fed works in Mysterious Ways.  But unfortunately, his plan worked too well, and when gold hit $1900, Bernanke changed his mind, and decided he wanted gold lower.  He threw the suppression engine into reverse once again, and as a result gold proceeded to plummet to its current nadir of 1150.

Ok, I admit it, my story doesn't make sense - even though it perfectly fits the price evidence.

How about this story instead.  Its a bit shorter.  Perhaps Occam would approve.  Price of gold correlates pretty closely with commodities over time.

Have you noticed lately that commodities are rallying, and so is gold?

 

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Setting the trend...

Well, the story I have in mind is that under Greenspan, from the 2000 crisis onwards, gold fully appreciated 100% in price....I misused the term 'most' and I should have included "if my memory serves" because I was writing off the top of my head before coffee... ya got me there...thank you for fact checking.

But the trend?  That started under Greenspan.  From the moment I first bought gold until the day he left,  Greenspan's Fed oversaw the largest percentage price appreciation for gold in decades.  100%!  

Greenspan's Fed saw that trend kicked off.

That's pretty significant...because gold isn't 'a commodity' it's the anti-dollar, or said another way, it's a vote against the Fed.  But that isn't me saying that, that's an FOMC member himself.

You can continue to see everything as explicable by the independent decisions of millions of savvy investors, but I think that view is wedded to a belief about how the world works...one that I don't happen to share.

Anything that can be controlled, is controlled...including and right down to the microphone one your supposedly turned-off cell phone.

Your view is that out of everything that the government, Fed, and big banker cabal can and do control, the prices of things aren't one of them.

Fair enough.  

You are entitled to that view, but it violates Occam's razor for me...the simplest explanation is that people are self-interested, power hungry, greedy organisms, but especially those that are drawn, like moths to flames,  to the halls of politics and finance.

I don't have any particular need to convince you of anything, I am quite certain the best explanation for the things I see happening around me include what's in the charts, and what I know about human nature, history, and how the ""markets"" are currently constructed.

FWIW I think you are clinging to an outdated notion that markets are somehow clean, pure and the result of things that can be understood and explained by math, charts and flows that result from rational decisions made by rational players.

The world has changed...markets have changed...humans play less and less of a role in setting prices with every passing day...instead we need to understand the actions of big players like the central banks who are willing to 'do whatever it takes' and highly concentrated and massive participants whose decisions and actions are far more important than the thousands and millions of little investor minnows feeding on the scraps they leave behind.

With this view, I am fully convinced that all of this progresses far beyond any rational or sane territory and that it someday breaks.  this is why I do have passion for debating this with you because I happen to think it's misleading to believe that today's prices for a wide variety of assets are useful in helping us understand the risks and opportunities that exist.

The grand manipulation was in re-setting the trend for money on a path to zero (and beyond!) from which all other price distortions spring.

Further the ""markets"" shifted in a very non-positive way in 2007/08 with the rise of the machines.  They are not humans, they are simply programmed, and they are highly manipulable once you understand their coded parameters.  They care not for fundamentals, or what is right or wrong, they care about making money.  Period.

They are the ultimate achievement of enshrining humanity's most base attribute; greed.  As a result, those with the opportunity to simply print money and dump it in ""markets"" have a very powerful ability to goose markets and an even more powerful set of motives for doing so and the machines make all that possible.  Ever wonder why there has never been an effective regulatory push to limit the rise of the machines?

No?

Well I've noticed over time that anything that advances the government's policies tends to get a free pass while those that run counter get the living crap regulated out of them, if not made illegal.

Bitcoin got a free pass, Bernard Von Nothaus went to prison.  

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davefairtex
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rational decisions by rational players

Chris-

FWIW I think you are clinging to an outdated notion that markets are somehow clean, pure and the result of things that can be understood and explained by math, charts and flows that result from rational decisions made by rational players.

Well that certainly would be a silly worldview to hold, given how it flies in the face of most everything I read and write about.  Fortunately for my own sanity, I do not hold such a worldview.  There is a kernel of truth in there.  I do like charts, and flows.  (Boy, do I like charts.  And flows.).  But the rest of it?  No.

Fortunately, we have here an expert at what my actual worldview is.  That's me, of course!  And naturally I'll be happy to explain what it is I really think.

The "outdated" notion I "cling" to (did you really have to spin it that way?) is that the markets are the sum total of the current sentiment of the players in the market, which is a combination of retail and big money.  Big money most often drives the sentiment via news.  Retail is usually right about the trends, but dreadfully wrong at the lows and the highs.  Big Money can be domestic, and it can be international.  Big Money flows and planted news stories driving sentiment generally determine price direction.  Retail generally piles in during the middle to upper end of a trend, and they bail out at the lows, which push prices both higher and lower than they "should be" as a result.  That seems to be their primary purpose.

I don't pretend to have developed this on my own.  I learned it from others who are much more experienced than I am, and I have kept it with me since it seems to be consistently borne out by experience.

Machines largely automate Big Money's decisions - they are a Big Money proxy tool.  Some skim the ticks, some execute arbitrage, some wang prices around in order to play games, run stops, etc.  Some machines are "good", while many others are not - given they are programmed by Big Money, what else would you expect?  The 10AM Tokyo assaults I'm certain are machine-assisted.

I make no claims to rationality from markets or humanity.  In fact, I explicitly disclaim rationality as it applies to markets - none of the players are rational.  All the participants are either human, or have been programmed by (and are overseen by) humans.  The most rational actors appear to be the market makers (market-making machines).  They just make the spread.

Markets are sometimes rational in aggregate, entirely by accident, but most often market prices simply reflections of extremes of sentiment - i.e. emotion - i.e. either fear, or greed.  At their extremes, markets are almost entirely emotional.  Market prices are the products of fractal, human-driven emotional cycles.  How can fractal cycles of fear and greed possibly be defined as rational?  How can that collection of actors be defined as rational - except that Big Money "rationally" takes advantage of retail on a routine basis.

I also do not make any claims of market purity.  Big Money is uninterested in market purity.  They drive poor retail like cattle from one extreme to the next.  There is no purity - its exactly the opposite.  But if you can successfully read the charts - over the longer term - you can see what's really going on.  There is truth in price & volume - not any sort of metaphysical Truth, but rather, the truth of the footprints of Big Money and the trend it reveals.

There is also predictive truth that can be obtained from charts.  More on that later.

Big Money prefers stories they can spin in the news media that they control.  They prefer you don't look at their footprints.  Fortunately for them and their bloated profits, humans overwhelmingly prefer stories to data.  They always have.  They probably always will.  Your stories about Fed this and Fed that will always be more popular than my dry, charty analysis.  People are hard wired to believe you over me.  "The Evil Fed Did It" story combined with houses burning down will always prevail over some boring conclusion by the chart guy about correlation mumble gold mumble commodities.  (WTF is a correlation anyway?)  That's just how things work.  I like to think that's my advantage, but - who knows, maybe that's just a story I tell myself.

Well that's it.  Now you know what outdated notions I actually am clinging to.

I certainly feel better anyway.  :-)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5067
substance and trends

Ok, now onto substance.

... gold isn't 'a commodity' it's the anti-dollar, or said another way, it's a vote against the Fed.  But that isn't me saying that, that's an FOMC member himself.

So we are not allowed to condemn these guys as idiots, lawyers, lame-assed economists who are perennially wrong about everything (which, incidentally, I firmly believe), and in the next breath quote them as authorities as to the intrinsic qualities of "what gold is" because it suits our current purpose.  If a stopped clock points at what you believe the current time to be, would you also quote that stopped clock as an authority as to correct time?

I assert, gold trades mostly like a commodity, alongside its cousin-commodities, regardless of what some Fed member says in some meeting.  That's what the charts say, so that's what I go with.

Now then, if the gold price diverged significantly from its commodity brothers - if gold was tanking while commodities were rising - then you would have a fantastic case and I'd be completely supportive of your thesis.  That's not what is happening.  Gold is flowing downstream, along with everything else.

I do not believe that the Fed has effective control over the global prices paid in the commodity space.  Nor do I believe they have effective control over the US equity prices.  They do clearly have influence over bond prices - they paid $4 trillion dollars for that privilege.  But that's influence, not control.  The taper tantrum is evidence that it is merely influence rather than control.

I operate under the "burden of proof" doctrine.  More likely than not, the world sets global commodity prices based on supply and demand, not the Fed.  Oil, copper, wheat, soybeans - the rest of it.  Global commodity market is larger than the Fed, and the stocks to flows for many commodities would quickly bring any manipulation attempts to heel.  Thailand attempted to manipulate rice prices higher.  They ended up with vast amounts of rice - now rotting in warehouses.  Big scandal, that.  Commodities are all moving (roughly) together.  Especially the ag commodities would respond very rapidly to "unfair low prices."  One season, and supply vanishes.  It's been 4 years now.

You yourself have called copper "Dr. Copper", pointing to the drop in copper as evidence of global slowdown and deflation. (I believe this too).  If you truly believed that the Fed was manipulating the entire commodity space (including copper) in an attempt to move gold prices lower, why would you continue to refer to Dr Copper as a legitimate indicator of economic activity?  You've said the same thing about oil as well.  Either the Fed manipulates all commodity prices and none of them are useful for indicating anything about gold since its the Fed pushing prices down and not a China slowdown - or else, dropping commodity prices are happening as a result of slowing global economic activity, and that must therefore be a strong influence on the price of gold - as it has been historically.

You can't have it both ways.  Either Dr. Copper and oil have been corrupted by the Fed and aren't useful to indicate anything - or the prices paid are legitimate and copper and oil (until recently) have been screaming "deflation" and "China slowdown", AND copper AND oil have both helped drag gold prices lower, because that's just what they do.  Historically speaking, that is.

Of course the Fed would like to control gold.  It would like to control everything.  It just can't.  It really did get lucky when China dramatically slowed down its rate of money printing in 2011.  The alternative story: Fed controls every price everywhere, 24/7.  Dr. Copper means nothing.  Falling oil price indicates nothing.

Do you really believe that?

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 653
Not either/or but maybe both/and

Trying to follow all this discussion by heavy weight intellects is utterly fascinating.

Is this a correct summary?

1. Chris thinks/believes gold is manipulated/suppressed.

2. Dave thinks/believes money flow and trends affect the price of gold.

Why can't it be # 1 at times and #2 at other times? Or, even BOTH at the same time?

More important for me:  What are the practical consequences of two worldviews?

1. Gold is HELD low so that the confidence in fiat money maintains its power.

2. Gold FALLS low because of depressed natural resources due to slowing global growth.

Strikes me that BOTH can work hand in hand, no?

So, when buy gold BIG TIME (and not just gradually)?  Will either #1 or #2 give us the bottom?

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5067
both and

KP-

Late-breaking news: it is actually both.  My recent research (this past weekend) shows what appears to be very significant assaults on gold and especially silver at specific points in time.  Most took place several years ago, in 2010, 2011, and 2013.  There was another smaller event recently, right at the 1075 low.

Again, after some serious digging, I did find clear traces of repeated and serious assaults.  They are not daily occurrances, and they do not always result in large moves.  Sometimes they even seem to play a part in establishing a low.  My next question is, why did some succeed, some succeed wildly, while others simply failed to move price at all?

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Gold and Silver markets are manipulated

Ken,  there is no both here... there is only the pretend derivative markets, and the one step removed more pretend derivative of derivative markets.  What do I mean?

Let's step back and review the basics, which I think many people still don't quite understand.  If Comex was once a physical delivery market... it certainly is not anymore.   Things have changed DRASTICALLY since 2008.. paper leverage has increased.  Comex has lost whatever connection it once had to physical Gold demand, having been taken over by paper.  It's easy to see where the real physical markets are.. in Asia. 

But that's not the whole point.. the point is, while stocks have price discovery occur in primary trading markets.. with futures being wagged by the primary, share market, Gold effectively has no primary share market.. certainly not one that is in any way transparent.  Yes, both the stock market and the Gold paper futures markets are subject to high speed trading, spoofing, etc... but all of this happens with much more leverage in Gold because, again, the price discovery market is a futures market.     

Here are the charts that show how the market tenor has changed.  This is simple, and factual, and Dave probably won't face it head on for that reason; 

 

deliveries.png
ChinavsCMEDeliveriesAU.php.png
Meanwhile, SGE deliveries (withdrawals) rise to new heights based on China demand. 
 
So, back to the idea of derivatives of derivatives.  Since the Comex price of Gold is itself a derivative, what some may term derivatives are actually derivatives of derivatives, or stated more simply leverage x leverage.  Dave Kranzler wrote a prescient piece today based on his observation that the one of the corporate rats (Mitsui) is running off the ship, so to speak.  I will let him explain;
http://investmentresearchdynamics.com/is-japan-inc-pulling-out-of-the-comex-and-lbma/
 
 

One of Japan’s largest global precious metals trading companies, Mitsui Precious Metals, is closing down its operations in New York and London by the end of 2015.  Note that it will maintain its operations in Tokyo and Hong Kong – interestingly:   Mitsui Pulls Out Of NY, London.

Mitsui is one of the largest business groups in Japan and one of the largest corporations in the world.  “When in doubt, pull out.”  In my view, this move reinforces the growing global fear of the massive paper to physical gold/silver leverage embedded in the NY/London banking system.

Remember, we are able to assess only what might be available to back visibly traded paper gold and silver derivatives (Comex futures, LBMA forwards).  And reported inventories are based on reports submitted by the bullion banks and Central Banks.  Do any of us really trust these bank reports as reported without visual confirmation and independent audits?

In fact, I will go as far to say that any analyst in this sector who presents any analysis and commentary based on bank-generated gold/silver inventory reports that does not stipulate up front that any and all information is based on reports that may or may not be accurate is thereby presenting invalid analysis.

missingbullionAnd, too be sure, all analysis that can be reasonably issued in entirely incomplete because it is impossible to assess the realistic exposure of OTC precious metals derivatives.   Even the banks who issue these opaque securities likely are in the dark.

I would suggest that Mitsui’s move pull out of the NY and London – thereby joining Deutsche Bank and Barclays – is symbolic of the world’s increasing perception that the New York and London financial markets are the biggest Ponzi schemes in history.  At the very least, it suggests that the world of growing weary of the fraudulent paper gold and silver markets on the Comex and the LBMA.

 

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