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Okay, you ignored all the points about the utility of gold as a unit of money, and followed with misstatements about my view regarding the scarcity of gold, so I will distill ideas down to as simple statements as practicable.
Gold supply is scarce. Gold is not in massive supply.
There is an emotional undercurrent to all markets. Yes, humans are emotional beings.
There is an overarching factor of physics in commodity markets. Physics is independent of human emotion. Supply and demand must be obeyed by all markets. Supply is the physics of elements on the Earth, and the relative effort, including time variables, to produce them. Demand is related to the absolute number of market participants, the relative situation (the drug tamiflu is in high demand during flu outbreaks, low demand during normal times), and yes some factor of emotion, fear of losing the opportunity to buy, greed, all of which are not quantifiable.
Everything you are willing to buy is scarce at some level, or else you would not buy it, you would walk out your front door and pick it up and take it home. Talk a walk in the woods sometime and look around. Observe what is scarce and what is common.
All commodities are scarce. Some now becoming increasingly scarce at a more rapid pace, due to PHYSICAL properties of the nature of the Earth's crust, the relatively PHYSICAL amounts of a commodity, other PHYSICAL properties of a commodity. It takes a relatively long time to grow an oak tree, thus oak lumber is relatively more expensive than pine lumber, which grows much faster. Supply and demand. PHYSICS.
Gold is a rare element. The rarity of gold is one of the many properties that makes it useful as money. Silver is almost as rare. Yes, other elements are rare, i.e. "rare" earths, but they have not been used as money because they don't possess all the monetary properties.
Gold is not sold on a purely emotion basis. Art is sold on a very emotional basis. Movies, rock songs and paintings are sold on the basis of emotion, desireability, peer pressure and heavy marketing campaigns. Do not confuse gold with a movie or book.
Most humans find gold is attractive, true. Additionally gold is especially chemically stable and resistant to oxidation, so it is used in jewelry and artistic ways. So is stainless steel. Stainless steel is not used as money. Because it is not rare. Gold is money.
Gold is expensive because it is rare and it is money. Not because of some crazed hypnotic effect that forces people to buy it.
There is a fundamental desire of humans to have the ability to store their wealth in a form that cannot be destroyed. In order to be used in the future. In order to have an insurance policy in the event bad things happen like a health condition or natural disaster. People have a noble instinct to help their children succeed and providing them with stored wealth for all the above reasons gives parents great satisfaction.
Yes, we have options on how to do that- build a house with your wealth, purchase land, start a business, pay for skills and education that can be useful in the future and for the rest of your life.
But money has always been a central way to achieve wealth storage.
And money has fundamental utility like a knife or frying pan. It is useful, like a tool.
Gold is money. It has intrinsic utility. As is. Lumber and cotton do not have intrinsic as is utility like gold and silver. Effort and enery must be further applied to lumber to make a house, or a chair, or a pair of jeans.
The current global population is coming to an end of the monetary experiment with the latest flavor of fiat money. There have been many fiat money experirments in human history, without exception ending in destruction of the fiat money because of the eventual degradation of the currency due to the weaknesses i.e. greed, power-seeking and narcissism, short-sightedness and just plain old evil behavior of humans beings The current fiat money system is on the exact same path, however different from previous fiat money systems in that it has been put on steroids by fractional reserve banking, massive credit expansion fueled by cheap energy, and the digital age where currency can created at essentially zero cost and moved around the globe at essentially zero cost.
At the end of monetary regimes, people go back to money that they trust. And that is precious metals.
We are at the end of the current monetary regime. You know that (I assume). I know that. Chris knows that. James Rickards just wrote an entire book about that (The Death of Money). The Chinese government clearly knows that. Most (many?) rich people know that. The Russians know that. I believe the Fed and many in the U.S. government know that. The reality is that a majority of the world's population doesn't know that. In large part due to a lack of infomation, normalcy bias, comfort in their current living standards, and most perniciously becuase of a deliberate effort by their governments and business leaders to suppress information and create propaganda to intentionally mislead these undereducated people.
The people who do know the truth are buying scarce gold at a prodigious pace. The contervailing tectonic force of propaganda and fake paper market manipulation and spin and lying and corruption is in overdrive to suppress the preceding fact, since the general public awareness of that reality would ignite a run on the gold market. And that would bring the end very rapidly. The Fed doesn't want that. They have a weak-minded and wrong game plan that if they obfuscate reality and prop things up long enough they will buy enough time for growth to magically return. The odds are astronomically against them, but they must think the odds are in their favor.
As with all tectonic forces, one eventually loses and one wins. There is massive pressure building up on one of the tectonic plates, those pressures being credit-debt-money supply, indebtedness, market distortions, energy depletion and environmental degradation.
Gold is money. Gold has always been money.
Gold trades as a money-commodity, not a commodity.
The current Keynesian and U.S. centric monetary experiment is coming to an end. I don't know exactly what will replace it. I do not know when and over what time window the "end" will be declared.
The people who do understand that the Keynesian experiment is coming to an end are simply differing on how soon and over what time period. That governs the relative demand of gold currently.
The rest of the world's population is very vulnerable and will be very angry at the immorality and treachery of their current leaders when the truth is revealed. By physics, not emotion.
You make the same mistake that many "commodity" analysts make, you claim that gold is just another commodity.
That is simply incorrect.
Gold has commodity properties, yes, it is mined as a natural resource, yes, the smart people wearing suits and ties and publishing stock exchanges call it a "commodity".
But, that's like calling the Mona Lisa a "paint storage device".
A definition or view may have technical correct aspects, but is so far from reality as to be laughable.
1. an article of trade or commerce, especially a product as distinguished from a service.2. something of use, advantage, or value.3. Stock Exchange. any unprocessed or partially processed good, as grain, fruits, and vegetables, or precious metals.
These definition fall a bit short, in that a commodity is a simple product that is elemental, or easily interchangeable material, one for one.
Now what it different about gold, what could it be….?
I will give you a tiny hint. Let's look at another definition.
1. any circulating medium of exchange, including coins, paper money, and demand deposits.2. paper money.3. gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value.4. any article or substance used as a medium of exchange, measure of wealth, or means of payment, as checks on demand deposit or cowrie.5. a particular form or denomination of currency. See table under currency.
Yes, that is the definition of money. Now, some would argue about these definitions, like Mike Maloney, who I believe would say that fiat paper is currency, not money. However gold is money. These are interesting questions, and, with much respect to Maloney, I tend to fall on the utilitarian side of the definition that anything that people agree is money, is money.
However, Dave, you need to really think through which "commodities" have monetary properties and which do not. I think it is plain that oil has no real monetary values, whereas gold has all the monetary values. When you are talking about supply flows of oil, you are talking something that is constantly burned up to worthlessness, versus gold which is highly prized, not burned up and stored (actually carefully stored in secured vaults) for its monetary value. That simple fact explains the flow-reserves you superficially argue.
Try this simple test to understand money. Assuming you could not be paid in digital or paper currency, and had to pick an entity on the commodity board for your paycheck (or customer payment), what would choose?
For your $1300 paycheck would you want delivered to your house-
1. 13 barrels of oil? 2. Several large bales of cotton? 3. Dozens of board feet of lumber? 4. 6 or 7 pork bellies? or 5. One American Gold Eagle?
Does this help you understand the difference between a "commodity" and "money"?
At the end of the day, people want to be rewarded for their hard work and creativity. They want to store extra fruits of their labors for a rainy day, to buy a house or other useful product in the future, to pass on wealth to their children. These are all accomplished with money, not generally with commodities. Perhaps the things Rickards mentions, fine art, land could also be used.
If we had responsible government and business leaders, fiat currency could in theory be used as money because it would truly be rare, reliable, portable etc. I think you know that we do not have a responsible government or business leadership. The hard earned money in your bank account and retirement fund is being destroyed at an ever-increasing rate by our government. Actually, to follow the PP recent themes, it is being transferred (stolen) from you and handed to other folks (thieves).
When the present fiat currency collapse reaches it natural conclusion, paper or digital dollars will be worthless, since they will be more like lumber and cotton (actually much less useful than lumber or cotton).
However, the world will still need money, the same as it always has. Where will that substance with all the important qualities of money come from, I wonder? Seashells? Zinc U.S. quarters? Will people be carrying around bottles of crude oil to exchange value for value for goods and services?
Where will the money come from? Good question.
I agree with you and perhaps Taleb, but only in part, in that markets are partially governed by emotion. Admittedly it took me a long time to fully appreciate that economics and markets don't function like true science like physics and chemistry that follows natural laws that care not a whit about my emotions and have inviolate laws that are objective "out there" and must be followed. Hard science is only about discovering and describing e.g. codifying these laws that already exist, again regardless of human beliefs and emotion.
Economics is in large part about trying to explain why humans behave in the way that they do. Usually after the fact. And that's a problem for a "science". A key feature of science is proving a law by constructing a prediction, or multiple predictions, that will happen if your new laws are correct. Refer to Einstein's prediction of the sun bending light due to relativity. Einstein called his shot.
Economics, not so much.
That's why "economics" as a "science" seems like chasing your tail at times. But I try to look at the whole in a balanced way and realize that what economics and markets really are is an unpredictable mix of physical laws and human behavior.
Can you completely fabricate a market demand by playing on human emotions, using marketing and propaganda? Yes. Exhibit A- Pet Rocks.
Can you buy wheat or gold that is physically not available? No, no matter how much propaganda, or spin, or technical charting, or government policy, or CNBC articles, or Federal Reserve statements are made.
Gold has physical properties, not emotional properties (discounting the fact that is often shiny- due to its physical properties) that has made it highly prized and useful as money for thousands of years. And no amount of propaganda or emotion will change that.
As far as that "massive supply", by my calculations, at 170K metric tons, and 7 billion individuals on planet Earth, that equals less than 1 troy oz per person. Please check my math and correct me if I'm wrong.
Does less than 1 oz per person sound like a "massive" supply to you?
Enjoy your Tuesday,
As far as this
Gold isn't behaving according to the Laws of Energetics, Laws of Thermodynamics, 30,000 years of economic supply and demand laws, innate instincts and patterns of human behavior and laws of efficient market operations.
Hrunner's opinion has nothing to do with it. Hrunner is an observer and commentator. Hrunner is merely pointing out the divergence between the above laws and the posted nominal price of gold.
I think you and I would agree we can defy the above laws of physics and economics for a time.
It is possible to live well for a year eating your seed corn. And the DF crowd would perhaps say "see, there is nothing wrong, look at all the food we have. Markets are normal. Concern to the contrary is paranoia and conspiracy". But unfortunately for the folks with this outlook, winter comes, and then spring comes and then you have no seed corn, then you starve.
You may think it is unreasonable or impossible for the government to manipulate markets. You may not have read about the following entities:
The Working Group on Financial Markets
Definition of 'Plunge Protection Team – PPT'
A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence. The team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission.
Investopedia explains 'Plunge Protection Team – PPT'
"Plunge Protection Team" was the nickname given to the Working Group by The Washington Post in 1997. The team was initially perceived by some to have been created solely to shore up the markets or even manipulate them. The team was created in response to the 1987 market crash.
Claims about the Working Group, which are labeled conspiracy theories by some writers, generally include that it is an orchestrated mechanism that attempts to manipulate U.S. stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures—acts which are forbidden by law. In August 2005, Sprott Asset Management released a report that argued that there is little doubt that the PPT intervened to protect the stock market. However, these articles usually refer to the Working Group using moral suasion to attempt to convince banks to buy stock index futures.
Former Federal Reserve Board member Robert Heller, in the Wall Street Journal, opined that "Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole." His statement has been used to claim that the Fed actually did act in that way. Some mainstream analysts call those claims a conspiracy theory, explaining that such claims are simplistic and unworkable. Author Kevin Phillips wrote in his 2008 book Bad Money that while he had no interest "in becoming a conspiracy investigator," he nevertheless drew the conclusion that "some kind of high-level decision seems to have been reached in Washington to loosely institutionalize a rescue mechanism for the stock market akin to that pursued…to safeguard major U.S. banks from exposure to domestic and foreign loan and currency crises." Phillips infers that the simplest way for the Working Group to intervene in market plunges would be through buying stock market index futures contracts, either in cooperation with major banks or through trading desks at the U.S. Treasury or Federal Reserve.
The Exchange Stabilization Fund
The Exchange Stabilization Fund (ESF) is an emergency reserve fund of the United States Treasury Department, normally used for foreign exchange intervention. This arrangement (as opposed to having the central bank intervene directly) allows the US government to influence currency exchange rates without affecting domestic money supply.
The U.S. Exchange Stabilization Fund was established at the Treasury Department by a provision in the Gold Reserve Act of January 31, 1934. 31 U.S.C. § 5117. It was intended as a response to Britain's Exchange Equalisation Account. The fund began operations in April 1934, financed by $2 billion of the $2.8 billion paper profit the government realized from raising the price of gold to $35 an ounce from $20.67. The act authorized the ESF to use its capital to deal in gold and foreign exchange to stabilize the exchange value of the dollar. The ESF as originally designed was part of the executive branch not subject to legislative oversight.
The Gold Reserve Act authorized the ESF to use such assets as were not needed for exchange market stabilization to deal in government securities. The Fund had no statutory authority, however, to engage in other activities that it began to undertake. The principal such extraneous activity it devoted itself to was lending dollars to politically favored governments.
A change in the law, in 1970, allows the Secretary of the Treasury, with the approval of the President, to use money in the ESF to "deal in gold, foreign exchange, and other instruments of credit and securities."
The U.S. government used the fund to provide $20 billion in currency swaps and loan guarantees to Mexico following the 1994 economic crisis in Mexico. This was somewhat controversial at the time, because President Clinton had tried and failed to pass the Mexican Stabilization Act through Congress. Use of the ESF circumvented the need for approval of the legislative branch. In response, Congress passed and President Clinton signed the Mexican Debt Disclosure Act of 1995, which implicitly accepted the use of the ESF, but required reports to Congress every six months on the status of the loans. At the end of the crisis, the U.S. made a $500 million profit on the loans.
On September 19, 2008, U.S. Treasury Department announced that up to $50 billion in the ESF would temporarily be made available to guarantee deposits in certain money market funds.
Dave, manipulation of gold price by the government is official policy, not Hrunner theory.
I refer you to a detailed treatise, Gold Wars, by Ferdinand Lips, that is highly foot-noted and documented, covering the price suppression in $35 gold days by the London Gold Pool (which failed eventually due to – you guessed it- Laws of Physics, Laws of Supply and Demand). The fabrication, I mean "creation" of the Comex and private U.S. gold ownship in 1974, 1975. And the official statements of U.S. Fed and government officials about the need to control price and discourage gold competion with fiat currency.
As far as laws of human nature, do you not understand that the trajectory of humans in position of power, is to push the limits of the tools available until they reach a brick wall or a countervailing force? Do we need to go over the immediate history of the U.S. IRS bullying of the Tea Party, the now completely political and activist Department of Justice, the NSA spying program collecting every phone call and email without a warrant, and the accelerated use of drones to kill 'enemies of the state'?
And yet, the same benevolent and fair-minded government will step away and not intervene in the stock market, the gold market, the silver market, the bond market? Do you think a rapid rise in gold price and a parallel drop in the stock market and bond markets would have any political repercussions?
Do you think the politicians in power use the levers of government for political reasons?
There are forces in the market, it's simply that many of them are not market forces.
Market forces, indeed.
Thanks for the teaser from Rickard's book, and it definitely gives some food for thought. But it also highlights the frustration that some authors leave me with, in that many recommendations are vague, non-specific and not easily actionable. Believe, I deeply respect Rickard's intelligence and experience.
To wit, my thoughts on the list, and would be interested to hear yours and others:SEVEN SIGNS: (Indications and Warnings)1. The price of gold. A rapid price rise/fall watchGold seems to waterfall and rise a few times each week. And has been for a couple of years. The Globex 2,000 contracts dumps are well documented. Yes, there are also rapid rises as well. What is the definition of "rapid"?2. Central Banks continue to acquire gold, especially ChinaCentral banks have been acquiring gold for years, especially China. As Rickards points out, Russia up 70%, China up multiple 100's percent.3. IMF governance reforms. Issuing SDR-denominated bondsI don't follow IMF closely. But I assume they often issue updates on governance, perhaps some minor, others major? So when can we say is the inflection point? I suppose the SDR-denominated bond is a landmark.4. Regulatory reform failure. Bank lobbyist's defeat the needed reforms.This has been going on for 100 years. What specific difference should we look for?5. System crashes. Flash crashes, closure of market exchanges, etc.We seem to get NASDAQ, and even NYSE flash crashes with some regularity. Again, I ask, what specific metric?6. End of QE and Abenomics. Sustained reduction in US or Japanese asset purchases.Hasn't happened and ain't going to happen. This is one of my biggest disagreements with Rickards. I don't think he appreciates the commitment the Fed and government PTB to status quo at all costs. His point about confidence is well taken, but surely he understands the Fed will do "whatever it takes" to print their way to prosperity and maintain the status quo, the control and power of the current PTB players.We now know they effectively printed trillions of USD during the last financial crisis to provide liquidity to the EU, however, no one knew about until many months after the fact and only because Bloomberg News relentless pursued them for many months. Do you not think they will repeat this playbook, behind the curtain, with better subterfuge?Money printing will not stop until catastrophe hits the planet. Political revolution with strong charismatic leaders, global war, natural disaster, disease pandemic. These are the only forces that will change the monetary regime.And I'm not betting on political reform at this point. We, the citizens of the Earth, already know all we need to know to theoretically motivate big reforms, and we are doing nothing.They are doing the same old thing, with higher amplitude and higher propaganda levels, and higher capture of the media.7. A Chinese collapse. Financial disintegration by the wealth-management-productPonzi scheme.See above Number 6. China central bank and government has an even tighter grip on their domestic banks and media than the U.S. Fed (hard to imagine if that is possible, but at least the U.S. has an alternative media such as PP. For yet a little while, until the Neo-fascist tool kit called "hate speech" and "domestic terrorist" laws are enacted).Recognizable "Chinese collapse" ain't going to happen. Sure there will be individual bank failures, which will be promptly rescued by the Chinese government via money printing and bank takeovers.What stops Chinese government and central bank is mass riots, mass strikes, mass protests, mass disease and death, mass starvation.I think the fundamental disagreement I have with Rickards,, and I'm not even sure it is a disagreement so much as it is a call for clarity, is the notion that we will have a kind of 'repetitive scenario' of calm cycle of monetary collapse ("monetary collapse has happened with regularity every 40 years"). The tone I get is one of "ho, hum, just another monetary collapse, the 'rules of the game' will just be changed by the PTB and we will just embark on a peaceful journey down growth river with some mild adjustments.I was a bit disappointed that Chris did not challenge this Rickards notion more, since to my understanding, the theme of PP is that the next 20 years will not look anything like the previous 20 years does not translate to slight adjustments in the monetary system.Now I appreciate you can charge me with putting words in Chris' and Rickard's mouth, I'm just telling you what messages I am getting, and would appreciate some clarity if these are not the messages.The message I get from Rickards (and I have listened to multiple of his interviews because I appreciate his articulate and careful words) are that SDRs are just a ho-hum outcome of a monetary collapse that will be embraced by all, with some ho-hum adjustments by U.S. citizens now using 'just another currency'. Which Rickards has said in other venues means very high inflation.I don't think this will go down that smoothly at all. For two fundamental reasons.1. We live in a new world where no single entity (CBS, NBC, Pravda) controls information. The internet changed all that. Word gets out. Monica Lewinsky ignited an impeachment of a sitting U.S. president based on a report from a website by a guy named "Drudge". Yes, half the U.S. may be walking robots/ useful idiots that think Obama is just a great guy trying to help the "folks", and that all our ills are caused by rascist white men that hate blacks, Mexicans and women. And that if all the hard working 'folks' just hand over their cash to the great, benevolent government to redistribute, all will be sugar and lollipops.But I guarantee that the other 150 million know what is bullsh#t and what is not. And they know a lazy-ass thief from a decent human. So I don't they are going to peacefully accept a transition of control over U.S. money from one reckless and immoral tiny group of humans to another reckless and immoral tiny group of humans. And believe or not, I don't think Americans have a monopoly on outrage and a sense of fairness, so I think the same dynamic will play out globally.What I see coming is a more state-centric U.S. The Bundy incident is just a sign of this. The rising anger and impatience and desire for substantive reform is palpable, at least to me. This could mean Utah and Georgia saying 'go ahead New York and California, go your own way with your EPA gestapo and police state, your gun confiscation and garden and raw milk out-lawing, that ain't working for us so much any more'. We have seen that future and it looks like Detroit.' That same dynamic could play out throughout the world, Eastern and Western Ukraine, city-states in Argentina. I'd be interested to know what economies look like in that future.2. As I mentioned above, and Rickards even says himself, I thought a major theme was "you can't print your way to prosperity" and "you can't solve structural problems with cyclical solutions"Distilled down, SDRs are simply another form of money printing. Is that not a cyclical solution? What is fundamentally different about money printing USD, Euros, Yuan and funneling them to banks and irresponsible, overspending governments versus printing SDRs and funneling them to banks and irresponsible, overspending governments?If our true problems are financialization, market and monetary distortions, failure to live in balance with our environment, and coming to a structural end of cheap and dense energy, please tell me how printing SDRs instead of USD is going to provide stability and prosperity?I think Rickards is trying to predict the next 3 years, which, again I appreciate and respect. I don't know about y'all, but I'm planning on sticking around for 20 or more years. And trying to prepare for that, and for my children's next 70 years.Blessed Easter to all.H
Let's recap Dave's summary:
Fed continues money printing unabated (fugedabout "taper", Fed is reinvesting proceeds into asset purchases at sustained high levels- look at the Fed balance sheet, not what Yellen's yellin')
Incredible instability in the Ukraine, bringing a multi-national armed conflict into ever higher probability,
All other central banks furiously printing to keep up with each other via ZIRP or near ZIRP, mysterious bond buying from Belgium, Chinese central govt bailouts.
Indian government near ready to relax gold embargo and release the floodgates for Indian demand.
Gold crosses key technical level of 1320, which should at least get the robot chart traders hot and bothered.
High energy i.e. mining costs continuing unabated, even rising on fundamentals and global instability fears.
Gold gets smashed to 1280.
Stock market tries to correct multiple times, on obvious weak fundamentals, and mysteriously recovers.
Dollar tries to correct multiple times to rational levels (do I need to reprint the St. Louis Fed money supply and velocity charts yet again?) in at least the low 70's (and lower), and mysteriously recovers.
Mysterious Force Alliance (MFA) at work again it seems. All is well. Please continue to buy JPM and Walmart. And stay away from that nasty, barbaric gold.
The fact that gold has been smashed for almost 2 years and languishes in a trading range between 1200 and 1800 make perfect sense.
After all, our monetary problems are completely solved.
The Monetary Base is shrinking and returning to normal levels:
MZM is back below 10 trillion and we are no longer on an exponentially increasing path toward 20, 30 50 trillion of MZM money (Chris, that wiggle you so famously wrote about just after the recession in 2010 is now looking more and more like a slip of the graph-makers pen at this point):
And velocity is exploding to all time highs:
Indeed, why on earth would any want a monetary insurance policy, that is counter-party risk- free as alternative to fiat currency?
Looks like the government has everything perfectly in control. And we can believe everything they tell us.
You know, like the parts about how they are concerned about jobs, our shiny new health care will be cheaper and better now that the government controls it, if you like your doctor, you can keep your doctor?
Some clear thoughts byTed Butler on cheating versus trading.
(http://www.zerohedge.com/news/2014-03-22/how-why-jpmorgan-comexshould-be-sued-precious-metals-manipulation) (bolding mine for emphasis)
"What is the theory or premise of the legal case for market manipulation against JPMorgan and the CME? The COMEX has evolved into a trading structure that has allowed speculators to control and dictate the price of world commodities, like gold, silver and copper, with no input from the world’s real producers, consumers and investors in these metals. The CME has allowed and encouraged this development for the sole purpose of increasing trading fee income. Not only do the world’s real metal producers, consumers and investors have no effective input into the price discovery process on the COMEX; because the COMEX is the leading metals price setter in the world, real producers, consumers and investors are forced to accept prices that are dictated to them by speculators on the exchange.
Because so few of the world’s real producers, consumers and investors deal on the COMEX, the exchange has developed into a “bucket shop” or a private betting parlor exclusively comprised of speculators. Again, this is an intentional development as much more trading volume is generated by speculative High Frequency Trading (HFT) than by legitimate hedgers (like miners) transferring risk to speculators. Legitimate hedgers don’t day trade. It is no exaggeration to say that the COMEX has been captured by speculators and abandoned by legitimate hedgers.
In turn, JPMorgan has developed into the “King Rat” in the speculative bucket shop by virtue of its consistent market corners in COMEX gold, silver and copper futures. The COMEX market structure was already rotten when JPMorgan blasted onto the scene in March 2008 when the bank acquired Bear Stearns’ short market corners in gold and silver. Incredibly, the regulators engineered the Bear Stearns rescue, granting to JPMorgan a listed market control in addition to the OTC market share control that JPM held for years. Talk about a powerful manipulative combo – JPMorgan and the COMEX………
According to the CFTC’s data, there are two primary groups of speculators setting prices on the COMEX. One group are the technical funds, traders that buy and sell strictly on price movement. Also referred to as trend followers and momentum traders, the technical funds buy and continue to buy futures contracts as prices climb; and sell and continue to sell, including short sales, as prices fall until prices subsequently reverse. These traders are included in the Managed Money category of the disaggregated version of the COT report, primarily because they are investment funds trading on behalf of outside investors, also known as registered Commodity Trading Advisors (CTA’s).
One thing that can be said for certain about these technical funds is that they are pure speculators, as there is no mining company or user of metal in this category by CFTC and CME definition. By itself, there is nothing wrong with that as regulated futures exchanges need speculators to take the other side of the transaction when legitimate hedgers wish to lay off price risk in the normal course of their underlying business. This is the economic justification for why congress had authorized futures trading originally. The problem is that there are few, if any, legitimate hedgers involved on the COMEX nowadays; only other speculators that are falsely categorized as legitimate producers and consumers.
The second group of speculators are primarily categorized as commercials, mostly in the Producer/Merchant/Processor/User category, but also in the Swap Dealers category. Since these terms are quite specific and strongly suggest that only legitimate hedgers are included, most people automatically assume the traders in these commercial categories are just that – hedgers. But that is not the case, as most of the traders in these two categories are banks, led by JPMorgan, pretending to be hedging, but which are, in reality, trading on a proprietary basis strictly for profit. Simply put, JPMorgan and other collusive COMEX traders are just pretending to be commercially engaged in COMEX trading in gold, silver and copper when, in reality, they are nothing more than hedge funds in drag.
Words to consider for the MFA (the Mysterious Force Alliance). H
From Ted Butler (http://www.goldsilverworlds.com)
"I think it is absolutely crazy that we have allowed our markets to evolve into such a state where a small group of specialized trading entities are determining prices for the rest of the world.
Some will be quick to say that Comex or the CBOT are not the only markets in the world, but that's naive. These markets set the price of metals and grains, period. Everything is based off of these exchanges.
This creates problems since the traders setting the price, these speculative funds, whether they are large specs or commercial, are completely distinct and separate from the real producers and consumers of the commodities.
What makes spec technical funds technical is that they are only concerned with price change and nothing else. This is what separates them from real producers and consumers, who must contend with mining costs and profit margins. The technical funds only consider price and not the underlying fundamentals.
This is what makes the stories about pending economic weakness signaled by lower copper prices ironic. Those who are creating the lower prices, the technical funds, they don't consider economic activity at all. "
Amen, Brother Ted.
Of course there is no manipulation, just a mysterious "force" that dumps tens of thousands of contracts in the Globex in the dark of the (U.S.) night.
"So there you go. To me this is proof of – if not manipulation, a mysterious force that acts mostly in London & NY that tends to move the price of gold lower during that intraday time period."
Thanks for explaining this is with detailed charts. I found the thesis that there is a mysterious force as compelling as your conclusions that the reason we should allow big commercial entities the ability to create massive amounts of false gold paper for "liquidity" reasons.
As you and I both know, wealthy individuals and large institutions with a fiduciary duty to maximize returns for their owners are unsophisticated, do not have access to the world's best trading advice, and are not nearly as smart and you, Jim, me and Chris. They clearly have no knowledge of the most basic principle of efficient market operations like you and I do.
Apparently the firms with enough wealth to be able to dump 2,000 contracts in a few seconds are run by a bunch of people with low IQs that just scream at their trading desks to 'Sell! Sell!' at random intervals during the month. Clearly these wealth entities are motivated by an unseen and unknowable "force". Maybe it is mind control by the Vulcans or those evil Klingons.
That makes a lot more sense to me than a cartel of bankers who are engaged in suppressing gold price to support official Fed and U.S. government monetary policy of maintaining confidence in the dollar and the "Optics" of stable prices of commodities.
And making mountains of stolen cash in the process.
"In some sense, if there are forces of manipulation at work, this chart clearly shows they work particularly hard during London & NY trading time. And more often than not, they are asleep once the market closes in NY. What's more, they were working especially hard during the 2013 gold smash."
And by the way, I agree that there is downward bias in NY and London markets during intraday trading, notably on days following overnight smashes. The part that you are missing is that this downward bias is the follow through in the much larger Comex markets, that is driven by Comex algorithm trading, as a direct result from the overnight smashes. That is exactly the playbook, use focused contract dumps, in the smallest market, to create a strong price direction (trip a technical number, etc, etc), and let the algos do the heavy lifting the next day on the Comex.
This is indeed efficient use of markets. However it is efficient use for the theft of wealth by commercial banks, not for free and fair trade of commodities.