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Open Letter to Gold Investors: Will the Real Manipulator Please Stand Up
OPEN LETTER TO GOLD INVESTORS: WILL THE REAL MANIPULATOR PLEASE STAND UP
Courtesy of RUSS WINTER
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: Gotgoldreport.com
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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Yes it does matter. You are considering another commodity bull market. I am considering a global reset in which the reserve asset (only gold) is reset higher. It balances the books and makes everyone happy (except for the current reserve asset, the dollar, which would and will anyway, suffer greatly.
Silver only goes up if there is a great boom...unlikely.
untrue. Silver only goes DOWN when there's a big boom in everything else, real or temporary window dressing.
There is no scenario at all where silver is flat/down when gold is up. None. The only precious metal that won't perform well is rhodium.
I understand your point... I believe you to be wrong. If gold is reset, as you say, and if such an event takes place absent a windfall profits tax I would be surprised, silver will rise along with it... For that matter, all commodities would as paper would immediately devalue... Would silver gain value equal with gold, should gold be suddenly revalued at say 10,000 dollars... Again, I believe silver would pass gold by, as it is currently about 62:1... Or near the upper end of it's trading range.
The more interesting question for me is would silver fall as far and fast as gold if a recovery were in order. As you say, it is an industrial metal with with ever increasing utility. Sadly, I suspect I may not be around to find out as I am not looking for a recovery anytime soon...
the actual trend (not ratio) is visible on a scatterplot, http://flic.kr/p/f17z1s.
The supply change & industrial marginal benefit to each added or removed supply-ounce of silver is not like that of gold - not yet.
ln(silver) = gold x 3/2635 + 19/12
One day nano-gold film catalysts will kick the hell out of the other precious metals but today is not that day (at a level of full commercialization)
At this stage, would a Gold reset really work? The West, especially The US, doesn't have any Gold. Ask Germany!
Yes, that is the rumor. One that seems almost certain to be true.
"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?"
Everyone's national interest is served by allowing China to play catch-up to the West in terms of gold... that way when the big reset or currencty re-eavluation comes, we might avoid WWIII.
You're too smart for this world, Koos. The gold price Will stay low till the Chinese have had their fill. Be smart, go Chinese!
As long as Westerners thirst for 'gold' can be filled with a paper promise then they shall be satisfied in that manner. The Chinese and the oil nations need real assets to make up for their sacrifice of real oil and real production. They simply cannot be satisfied with paper.
We will continue to see gold fall until it is 'hated' so much that it is all gone.
As Ron Kirby recently said: 'this ends when the Chinese can no longer get their gold'.
Fofoa predicted the decline in gold price and fall in GLD inventory in December of 2012.
Neither of these guys have supernatural powers.
What we are watching is the natural end of an unnatural market. After all who ever needed a gold futures market in the first place? There was always plenty of supply...at the right price.
Soon, probably this year, (though at current rate of depletion it could take another 17 months,) all the gold in GLD will be gone.The Comex will have none then either. At that point there cannot be a paper gold market, it will be a physical only market. And THAT will be a problem. As much as 250 billion dollars of 'gold' changes hands daily on the Forex markets (AUX/USD, AUX/EUR AUX/ whatever). This market is central to our modern economy (and monetary system). When the gold market ends the jig is up for the dollar.
My newbee take on what has been said above.
JPM, a big player, has been taking gold deliveries.
(I suppose that little players cannot get any of the PM.)
China wants the PM.
Some sort of deal worked out at high levels to pass to China a lot of PM while it continues to play nice and hold US Treasuries.
Pretty obvious in retrospect that the FedRes and PBOC made that deal back in 2008.
The FedRes bought back all the Chinese owned RMBS at par back then as part of
their $16tn off balance sheet operations.
As I said in another post.Its all bullshit without an audit ,until the fat lady sings.
She has been warming up for a long time already.
I think it's important to ask the question of who benefits from PM price smashes, regardless of who is doing it. Dummy corporations have and are still set up to pursue political/financial goals. Sounds like the managed money (slingers) are really going out on a limb right now. Why would they do this counter to bullion bank longs? Simple. IF you want to play risky suppression games, do it with muppet money.
A corollary question to the one about who benefits is whether or not this conduct would/could continue if the U.S. gov't didn't approve? The gov't has plenty of weapons to deploy against anyone/entity that gets in it's way. Does anyone honestly feel that the CFTC wouldn't have any rogue traders and/or bank executive standing tall in front of it's board if the U.S. gov't interests were being thwarted by the traders efforts?
Let's look at the original motivation for gold price suppression. Gold Skyrocketing price = uncontrolled dollar price = uncontrolled, unrepayable yeild increases on treasurys and bonds. Gold price was suppressed and controlled to control interest rates (Paul Craig Roberts). So in comes JPM with a derivative based control scheme. Naked shorts to corner the market while using the profits to buy baskets of gold from GLD which is under their care and the gold is in thier vaults. This was a distribution phase, who the gold was distributed was not as important as the fact the gold was not being bought and held by the banks, or else they would not be stopping nearly every warrant to their own accounts in the last few delivery months. Bullion banks have been underneath a massive inescapable short position since Bear Stearns (silver mainly). Once gold suppression began they HAD to have a plan to clear those shorts becuase fundamentals were going to come for a visit at some point. It is clear the strong hands have passed the shorts to the suckers. The perception that gold will be allowed to rocket upward on a powerhouse short squeeze is unreasonable. The govt, dollar, and interest rates cannot take that and it will not be allowed. The control scheme is still in place, and it's goal is to prepare JPM to have as much real gold on hand for collateral when the other banks begin to be fed to it as they are the only tri party repo bank in the system (zero hedge).
Who benefits is simple, JPM. Govt, US Power, Profits, survivablity seem to be thier goals. All of our calculations are based on the rules we use for the market, it amazes me that we continue to count and calculate with them when those rules are subject to any change useful for the goals of govt. All you need to know about price is what is deemed "good" for the country, that is the direction price will go until controll is lost, and there will be no guessing about that moment. It will not sneak up on you like a thief, the market will rock like a earthquake if that happens.
Can price go lower? sure, it has to if the powers that be want those slinger shorts not to turn into buyers. At some point they will be handed their walking papers. The nice thing about it is that the pacework of the decline from this point forward must provide enough profits to keep rational participants from selling their positions. In the past the game could be run better because the banks manipuation based on naked shorts was not rational. Now one side of this market is real.
Appologies for the poor writing style, past bedtime and trying to write about financial ideas is a structural/linguistic nightmare.
maybe it's not just the price but something derived from it.
Maybe volatility in PM's also helps reduce volatility in something else like bonds. Scare sheep out of one pen into another.
Thoughts?
+1
The change/trend in prices is more important than the price itself I think. I also think that the CBs are dumber than we all think. Gold really is a relic to them, it is a tool, nothing more. They are idiots.
I hope this insanity in the PM markets is coming to an end but my instinct says suppression will continue until the product is not available physically except at a huge premium. This is what happened to the basic necessities of life like food and TP in Venezuela and the old USSR. We are moving in that direction to "save" the system.
Remember, the end purpose is credit market control. That might not always mean supression. There is an opportunity cost of keeping the metals so low. PM's very low prices can behave effectively as "dry powder" for controling other prices as getting other players to move funds into gold when it is so undervalued would be quite easy. This is effectively political capitol as well. Now that gold is so undervalued it is an obvious place get people to shift liquidity at need. Gold priced this low is an on demand "flow" control for them. I see the potential for this but I am not clear how it could be used. Sometimes I think of this manipulation as a sort of a bathtub with opposing asset classes at both ends, they just slosh money back and forth to lift and lower valuations. All manipulators have a logical need to get as many real participants on board as possible to decrease the risk to thier capitol. That is why in the past the banks went to some trouble to telegraph major beatdowns. (ie NFP) One of the major changes so far that I have noticed is that those beatdowns are not being telegraphed, which is interesting. Why are they not being telegraphed? This is a problem with Ilene's idea so far, is that if someone is still manipulating the market (they obviously are).... why are they not trying to suck other peoples capitol into the event? (at least so far)
honestly, I think that's what bitcoin is for. Divide the targets into 2 camps, those that want high fiat yields, those that want "stability" that's not bonds, not stawks yet don't want to store metal.
Suckerz by various names.
Take them all - throw more bait lines into the water.
fonz, keeping it simple from a point of view of valuation of gold in current valuation of dominant currency(dollar/debt growth ponzi) over a long timeline(100 years/creation of fed), we can safely say now is a good time to buy. whenever the cost of anything=market price it is a good time to buy.
if the input cost of a home is 100k and the cost is 101k i'm interested. gold is not a home, but the rules apply. the manipulation is our friend. the accumulation is the action andthe time has arived to buy.
simple...
as the ponzi scheme of debt creation hits its mathematical implosiblity as over in japan, the smart money will convert to the ONLY store of wealth that is safe. restating the obvious, governments and individuals see this clearly, hence the physical accumulation by strong hands(now).
only question is how much descretionay savings do you allocate.
indeed, so simple.
The age-old mantra "buy low, sell high" need only one adjustment for stacking: remove the part about selling (unless of course you consider barter selling, which it is, but normally that's not how people are thinking)
@Fonz,
Yes, agreed as suggested (Between the lines) in my earlier post at 20;06. They are in a grey area now because, as you suggest, who is going to trade in a market which is generally recognised as being rigged by the BB's. Yet they MUST keep Comex alive because the paper game is how they keep the manipulation going. It will end when there is no available physical to keep the game alive. And, yes I know it has been said for the last TWO YEARS, but it does appear that point is getting quite close, especially now that we have visited the total production cost??
That neans buy buy buy physical and wait. Even if does not pop, your money is relatively safer that fiat
IF Winter is correct, then we can be sure that JPM knows about it. IF that is the case, then, especially in view of "JPM's Clients" enormous long position we should expect to see the Mother of all short squeezes any day now? If not, there can only be one explanation as to why they would "Overlook" such a multi-Billion trading opportunity.
Qui Bono is, indeed, the right question.
I think we figured out who is benefiting and "who isn't".
What I'd like to know is when the likes of GS and JPM closed in on the deal with the Chinese to fix the price this low for this long, what other "strings were attached" (conditional and unconditional) restrictions being part of this agreement and for how long? I have to believe that the "other end" of this deal ain't working out the way the Western CBs had envisioned otherwise we wouldn't be witinessing the threats growing with the fast tracking of the TPP and our military presence all over the Senkaku Islands dispute with Japan and the Phillipines?
Then again. Who in their right minds would have ever imagined that we would one day tell the rest of the world that the barbaric yellow relic was no longer needed because our paper is better than anyone elses thanks to the black stuff under foot. And oh by the way, we can control all of it by use of force and offshore all of our jobs at the same time over 30 years with limited risk to the United States economy!
Fine line between sanity and insanity when hubris goes malignant.
"I have to believe that the "other end" of this deal ain't working out the way the Western CBs had envisioned otherwise..."
your assumption that all Western Central and National banks have all the same goals and options is wrong. this extends to the bullion banks and the Primary Dealers
Depends how you state the goal. Against each other their goals can be exclusively competing.
Against the muppets they can suddenly be all the same goal, expressed in terms of targets (people). Rulers want to continue to rule & so sheep must continue to be sheep. Which borders contain you & lords wear crowns or suits & issue your brand of fiat... well... is it so different?
oh, sorry, that's "WHAT DIFFERENCE DOES IT MAKE?!" so I can keep up with my ZH-bitching-memes.
And you know this because you're privy to the goings-on at the BIS? Do tell!
I shit you not, but there was actually a clown on CNBS recently (Reported on this very Board), who stated, with a straight face, that Gold is not an attractive asset because "It is not backed by anything"!!
All those Asian countries are behaving provocatively by placing their countries so close to all those US bases (Similar "Logic" to the above)?!
not the only one - a silly girl on CTV said the same thing - https://www.youtube.com/watch?v=ZLL2r3hXmjA
Me thinks that since the FED can not hand out money directly to the banks, It shorts the gold and the bullion banks go long at a prearranged bottom, thus transfer of tax payer money goes into their account by profitting the upside.
Another one is to short from an account in one country and buy in another thus playing with taxation advantages when they profit. It may be other similar combinations
I believe the video in question was not CNBC but this woman from 2011:
http://www.youtube.com/watch?v=ZLL2r3hXmjA