Open Letter to Gold Investors: Will the Real Manipulator Please Stand Up

ilene's picture



Courtesy of 


Monday’s flash crash in gold has predictably brought about commentary from the gold community. Nanex has the details of how fourteen 338 contract sells were carpet-bombed into the Comex gold pit for maximum effect.

Unfortunately, it appears that many of the folks who normally do their homework on gold activity seemed to regress into a pattern of blaming these dumps on the Fed and/or bullion bankers. Few, if any, commentators are looking at the actual reported data, such as the bankers participation report and commitment of traders, which points the smoking gun at speculators — or conceivably even a whale. I use the term “slinger” to describe the activity (work of a high frequency trading algorithm?).

The suspect for the indiscriminate attack behavior is again and again stated to be some powerful Oz-like central bank specifically the Fed. Subsequently, participants in the precious metals market have considerable pause, which contributes to a loss of confidence. After all, if one thinks the causa proxima of this is JP Morgan/the Fed, then the response is duck and cover or even to hit the sell button on that GLD ETF.

Rather, the real debate should center on who is really conducting this gold attack activity. Financial journalists should be looking at this as well. Proper journalism would recognize that whales in a thinly traded market, which the Comex has become, is not a new concept. There have been recurrent offside rogue traders and whales in various markets throughout the last two decades. With the poor oversight regulation today, I believe markets are full of them. Such markets become highly distorted. The regulators should be checking into the source and position sizes of these trades. 

If it was revealed to be a rogue trader or a cartel of leveraged funds, the reaction of gold investors would be entirely different from malaise, duck and cover and discouragement. Since this is an open letter to the public at large, let me state my case categorically and open it for intelligent discussion in the comments below. Please connect the dots with evidence as opposed to circular logic and opinion.

To that aim, here are my main points:

The Commodity Futures Trading Commission’s most recent banker participation report on positions as of Dec. 1 shows the U.S. banks as four participants. They are not identified by name, but historically and deductively, JP Morgan is the largest and most dominant participant. Over the last quarter this report has shown that the four big banks have continued to build a net-long position, now at 57,408 futures contracts, or 5.741 million ounces.

I have read comments that bullion banks don’t make directional bets; that they are effectively paper shufflers and trade skimmers. Oh? Still, there is a plausible second theory out there. Namely, it is that JPM is acting as an agent, or for agents, on behalf of the serious buyer of gold: the Chinese [see "China Successfully Hunts Where There is Gold"].

So is JP Morgan the short manipulator of gold as some suggest? At one time perhaps, but now I believe the answer is unequivocally “no” and, in fact, the complete opposite. JP Morgan and the three other U.S. banks have a large net-long position equal to nearly 15% of Comex open interest.

The next forensic report shows managed money’s short position in gold. Here, we see the off-the-chart short position of the managed-money complex. I suppose a true conspiracy commentator might offer up that the Fed has an secret agent conducting business in this complex. But what national interest is served by distorting the price of gold to such a degree that the Chinese can cheaply acquire thousands of tonnes, eventually announcing they have more gold than Fort Knox?

The managed-money cohort is extremely short with a directional bet, and to such a degree that it points to a single slinger or group of slingers who are willing to throw thousands of short contracts into thin markets, with the bullion bankers taking the other side of the trade. In its early phase several months ago, these attacks had good success in taking out long stops. Of late, this doesn’t seem to be working as well. Small speculators, who are traditionally long, are now flat.

The chart shows this short position at its peak in mid December. Since then, the most recent Commitment of Traders report for positions on Dec. 31 shows slingers are short 78,334 contracts, or 7.833 million ounces. Contrast that with the four U.S. banks and ask yourself: Who is naked shorting into this market?

Chart source:

Finally, if a whale or rogue trader was operating in the paper Comex market, we might expect to see price and supply distortions. Indeed, that is exactly what has happened. Currently, the Gold Offered Forward Rate, which is the rate at which dealers will lend gold against U.S. dollars, is in backwardation. That suggests tight physical supply and a measure of distrust in the so-called market.

One Month:  - 0.035%   (backwardation)

Two Months:  - 0.01667%  (backwardation)

Three Months:  - 0.00333% (backwardation)

I rest my case.


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CuriousPasserby's picture

Isn't there anyone in a position to subpoena the records and find out who's dumping?

el Gallinazo's picture

Listened to a one hour interview of Jim WIllie with Greg Hunter last night.  Very interesting if a somewhat "intense" delivery.

Willie makes an interesting point.  He maintains that the Comex is out of gold and London is almost out of gold.  It is all flowing to points east.  He maintains that China has actually been importing over a ton every month for over 18 months, much of it from London, and demanding it be recast to their standards in kilograms and 99.999% purity.  He refuses to take the paper price seriously and gives the analogy - what if Wal-Mart advertises a sale on shoes at half price, and you go there but they don't have any shoes and will take your money and gve you back different FRN.  Pretty stupid.  But this is the current reality of gold and silver futures.  It is simply a gambling casino and has lost all connection with the physical reality of gold.  How long can this last?  How stupid are we?  Better double the fluoride in the municipal water.

BigSimes's picture

Here's the State of Our Modern History:

1. China is the new kid on the block.

2. USA & Eurozone hanging on to hope and QE - JMP and Friends are the frontmen trying to keep the music going.

3. Russia don't give a shit. They're 'sorted'

4. The Swarm / Market is all and everyone. The Paper price of Gold is what it is.

I give up.


GFORCE's picture

If gold was in a bullish trend, no amount of 'manipulation' would change the trend. This is a bear trend. Get over it and don't embarrass yourself writing articles like this.


MeelionDollerBogus's picture

Manipulation changes all trends all the time.
Not bullish.
Not bearish.
Neither & never.
Gold itself is merely a reflection of bonds & real estate.
Gold can't be in a bear market until bonds pay more than 15% return and so do all savings accounts and real estate is 80% higher than today and oil is under $50.
That's a real bear market. This is not.

You're only embarassing yourself with your economic ignorance.

ms8172's picture

Don't price GOLD in either have some or you don't.  The price only matters when you are loading up the truck with it!


So you get over  it!

fijisailor's picture

Paper gold is in a bear trend.  Physical gold is in a bull trend

Sufiy's picture

Bloomberg: China May Become The Third-largest Holder Of Gold 

 Here it comes and a lot of people will be taken totally by surprise. Record buying of Gold by China last year will be translated in the much higher Gold holdings by PBOC. Bloomberg reports that these holdings could surpass now those of Italy and France - Jim Rickards talks about the announcement by Chinese Central Bank of 5,000 t of Gold holdings in the nearest future. It will be the game changer and puts Gold solidly into the investment game as well. Yesterday shock with Jobs numbers can be the sign of the real state of US Economy and it means that FED does not have any real exit strategy from QE permanent state. In another news Royal Mint in UK has run out of gold coins due to the exceptionally high demand.

disabledvet's picture

I will not be looking at the mysterious but the obvious. this thing got to the moon in 8 hours..."and will arrive around Pluto 3 years early." 50,000 mph is moving ...and Pluto ain't next door. This thing was flying past Mars in just three months. And this craft is pretty old by today's standards. I say this because i detected "serious wobble" due to space launch anxiety. if these things can go up one a some point they'll be returning one a week too.

russwinter's picture

There is a new forensics as to what the bullion bankers might be up to. Doesn't look like gold suppression to me. 

Right at the last minute this week and without fanfare, the banksters announced a re-balancing of their two commodity indexes to increase allocations to gold in particular, and also silver. As an old-school kind of guy, I like to watch actions and not words. These commodity indexes were heavily liquidated throughout 2013, so the timing is quite interesting. The immediate effect will be to add $1.1 billion in gold future contracts to the mix. Alasdar Macleod reports that this translates into an extra 9,200 Comex gold contracts and 3,845 silver contracts. The re-balancing exercise works through five business sessions starting on Wednesday the 8th.

thunderchief's picture

The Comex is not a gold exchange, it is a paper pricing mechanism. JPM's long position is for price manipulation/suppression. They know those contracts are not redeemable for real gold.

Usura's picture

One thing is clear:  The manipulator(s) past and/or present are beyond regulatory reach and have no fear of any meaningful penalties.  Likely suspects in this category are TREASURY / FED / TBTF.  The usual suspects.  China might be a co-conspirator but what really matters is that these has been a complete failure of the rule of law in the securities markets.  Can a complete disaster be far off?

Keloid's picture

If somebody, the Russians perhaps, were sitting on a mountain of gold that had been found but NOT reported, this would seem like a great opportunity to liquidate beofre the world figures out that the global supply of physical is much greater, two or three times maybe, than previously believed. 

Siberia occupies a great deal of real estate. Certainly it is feasible for Ivan to have stumbled across a few olympic swimming pools full of 24k.

What better way to pick the pocket of those scheming chinamen?

chubbar's picture

I disagree. If there was an unreported mountain of gold the correct play would be to let market forces run the price up to astronomical heights and then trickle out gold as necessary. Think DeBeers and diamonds.

russwinter's picture

These speculative attacks involve moutains of paper futures transactions. Virtually no real gold is being delivered nowadays on the Comex. 

Colonel Klink's picture

And maybe if my aunt discovered a pair of balls in her panties, she may be my uncle.  Who could play pool in his pocket.


philipat's picture

Where is Boris when you need him??

Colonel Klink's picture

Mining residential copper.

vincent's picture

Well written and presented Russ. I know many here appreciate your efforts.

I read it back when you linked it in the thread, and have since added your site to my regular stops out in the webs.



kliguy38's picture

Actually your thread tells you the IS about Physical Gold and its accumulation by the Chinese while "Rome burns"......this charade began with some "promises" and is about to end as these "promises" were fulfilled. Yes there are two factions involved here and NOT with disparate intentions......what you fail to completely understand the end game is physical of course but WHO REALLY owns the most physical and when you DISCOVER this answer then you will discover the full intent of the algorithm and why its riddle is so difficult to solve in the face of seeming conflict......hint ...there is no conflict. OBTW........WHO is not a country......and NO its not the Vatican

are we there yet's picture

David Rothchild and his family have the right long term family planning mindset to be a candidate, and they make Soros look like a poor man. My next guess is the Chinese are playing a secret one sided game of 'GO' and manipulating gold and silver paper lower while draining physical.

putaipan's picture

oh c'mon spill it if you really got a good theory.... if it's not the 'vatican' (and by association i assume you also mean the jesuits) ... you mean it's the bavarian masonic nazis v.s. the babylonian frankist bankers?

Siouxwestern's picture

Shouldn't a US agent have to register as an agent of the foreign government? Have any of the bullion banks registered their agency status with the US, as required under 22 USC 611? 

joego1's picture

While the whales splash around the ants scurry off with a nugget or two.

Colonel Klink's picture

I might suggest it's a steady stream of ants.  Ever seen them pick a carcass clean?

new game's picture

and that is why i sleep in the woods in a tent...

Son of Captain Nemo's picture


Much obliged for your investigative talent and understanding of the PM market. I've read many of your previous threads here on ZH and your analysis on this is first rate.

I had very few doubts before I read this, but this only solidifies with certainty what we already knew about Bart Chilton and his 'absentee Landordism' while at the CFTC, and like every other Federal agency that has both the responsibility and authority to regulate the market(s) refuse -including the SEC, HUD and DOJ...

We should be cutting all of them for the utter incompetence and contempt they have for their jobs!

philipat's picture

The fact that the CFTC Investigation concluded, essentially, "Nothing to see here, move along" surely confirms that JPM was acting on behalf of "Someone else who is above the law" (That would be the same someone who can dump thousands of contracts in seconds at the thinest trading times , so as to ensure the largest possible trading losses)?

Why has nobody made a FOI request to CFTC for documents from the investigation? In particular, the testimony from the JPM whistle blowers might be quite interesting, no?

raeb's picture

FOI?  Good luck with that.  All the pertinent info is blacked out.

Vint Slugs's picture


You're jumping to paranoid conclusions about JPM acting for "someone else who is above the law" - emphasis on "above the law".  Let's say that, in this case, the Morgue is executing trades for a legitimate hedger (e.g. a trading arm of the Chinese gov that has the physical).  There is no restriction on the amount of contracts that a legitimate hedger may execute at any one time.  It's legal.

MeelionDollerBogus's picture

That's what Jim Rogers said in an interview & I imagine he knows how to trade commodities.

philipat's picture

Correct me if I am wrong but The Comex, the platform of choice for the paper pirates, does, at least in theory, have position limits? I'm sure CFTC is all over this!

Vint Slugs's picture


You are wrong. 

All U.S. futures exchanges, including Comex, have speculative position limits.  From the Commodity Exchange Act (1936):

      "IN GENERAL.—To reduce the potential threat of market manipulation or congestion (especially during trading in the delivery month), the
       board of trade shall adopt for each contract of the board of trade, as is necessary and appropriate, position limitations or   position                                        accountability for speculators."

From above, we are talking about a bona fide hedger who is using JPM as a broker.  The CFTC knows full well who is a bona fide hedger and who, therefore, is subject to required reporting.

You need to realize that whatever information that you might have about alleged "manipulation" it almost certainly came from one of several popular sources.  Some of them are TB, HO, TF, and ZH.  None of those particular entities has other than a rudimentary understanding of how U.S. commodities exchanges are structured and operate.  Probably none of them has ever read or understood the Commodity Exchang Act and they have a profound ignorance of commodity law.  Furthermore, my guesss is that they also have never had an active commodity futures trading account.  Most all of their writings imply a complete ignorance of how exchange trading functions.

btw, nothing personal but your term "paper pirates" is laughable - largely reflecting the ignorance that has been propagated by the above noted popular sources.

philipat's picture


OK, so please explain

  1. Why would any "Legitimate" trader on several occasions dump thousands of short contracts in seconds at the quietest trading hours? That "Strategy" would seem NOT to be normal for any Trader looking to exit  a large position quickly whilst minimising losses?
  2. Why does the price of Gold go down in the face of MASSIVE Global CB money printing ("Not leterally"...Binyamin Shalom Bernanke)
  3. What makes you so "Omnipotent" and why would you frequent the very sites that you claim to be "Ill-informed". One would have thought that you would be above that.

Without sensible answers to all of the above, I am inclined to call "Troll"

Oracle of Kypseli's picture

Furthermore, limits and other regulations are being ignored or changed as needed. VS is defending the indefensible because he trusts his government and the institutions who have admitted manipulating everything else, except gold.


Son of Captain Nemo's picture

Bingo! +100 trillion

The same goes for the Fed and Department of Defense having it's first audit... Oh how many years has it been now????.....

When these ass clowns in the Nation's Capital take it too far as they already appear to be doing everywhere on the planet and have been throughout my life, whoever is forced to blow the money shot on the U.S. the "deadly back up" will be ALL OVER Washington D.C. until IT'S OVER!!!

If the American people won't change it then by all means China and Russia take it away from the rest of the World for posterity and lesson on what should never happen!

DollarMenu's picture

The author asks: "But what national interest is served by distorting the price of gold to such a degree that the Chinese can cheaply acquire thousands of tonnes, eventually announcing they have more gold than Fort Knox?"

I would suggest that this action permits China to liquify US Treasury holdings at close to par, and in doing so, bypassing the decade of dollar inflation that would otherwise have to be acknowledged.

eddiebe's picture

Why does the author assume it is a national interest anyway? Does Bernanke or Obama have the national interest at heart?  You start with faulty premises, you wind up with the wrong answers.

mrjon007's picture

Yes!  And the US gov/JPM is at least complicit in this activiy (if not outright orchestrating it) so as not to further upset the US bond markets.  The US wants the game to go on as long as possible, but China doesn't want any more paper. 

philipat's picture

That's why all the Gold destined for China is re-processed into 1Kg .999 bars in Switzerland before going to China. Germany has apparently been having similar doubts about so-called "Good delivery" bars? Edited for a typo originally written as "God" delivery bars. maybe better with the typo!

logicalman's picture

Realising that the whole thing is manipulated is the important thing.

All markets are broken, whether it's due to Banksters or HFT (or both) doesn't really matter.

Plan accordingly.

Vint Slugs's picture

There is nothing new here that would surprise any thinking person.  The same goes for the silver market.  That a handful of large banks could be the agents of the Chinese or other large, sovereign trading entities, in both silver and gold is news only to a small group of purported analysts and so-called pundits - those who cannot wrap their minds around realities that are other than conspiracy driven.  At least Russ Winter deserves commendation for presenting the facts that tend to corroborate the idea that large volume directional price moves are probably a function of institutional, probably speculative, traders or algorithms.


lasvegaspersona's picture

The gold market is different than the silver market. Silver is now an industrial metal and we will never see it used as a monetary reserve. Just look at what central banks hold ONLY!

GLD inventory dropped 40% in 2013. The inventory of SLV?...check it out for your selves...and get out of silver and into gold. Gold must be revalued to function as a reserve asset. Silver could fall further if there is less industrial demand.

I'd think long and hard on this one if you are still buying Monster boxes.

MeelionDollerBogus's picture

gold is now going to be an industrial metal too - a better catalyst than platinum or palladium, or silver, in nano-porous form, especially as applied to a base layer film of titanium dioxide, even immune to CO contamination that hurts the other catalysts.

As for monster boxes of silver, silver will be used for barter when cash is no good (hyperinflation), grids are down (no bitcoin, no credit either) and gold is too valuable to trade for a week or even a month of food (well, we'll see - if food prices are high enough & supply chains are cut off, maybe not!)

Lordflin's picture

Silver still trades as a monetary metal... and is still loosely pegged to gold, trading in a range from roughly 80:1 to 10:1... The former when monetary concerns are minimal, the latter would be indicative of a collapse in paper... At least this would be more or less the case in a market allowed to function without intervention. Still, the connection has value as it guarantees silver will move up and down faster than gold... If you believe that paper is being trashed, and that gold will trend up as a consequence, silver is the more aggresive trade... its primary drawback being that it is difficult to store.

Interesting article... I always find this contributor to be worth reading.

Oracle of Kypseli's picture

The storage issue gets adjusted as the big players do not bother with silver so much but the small players get silver instead but the small players are many more and the storage issue on lesser amounts is not that important.

10 gold coins in your pocket equals a monster box of 500 silver in value (approx) So if there are 50 or more small players to one big player the storage is no longer a deterrent.

StychoKiller's picture

Does it matter if Ag skyrockets BEFORE or AFTER Au?  One or the other will trigger ALL PMs to rise in large measure.