Is The Gold Market Really Rigged?

Dedicated to .... ( *whistle2* )

Posted on MoneyWeek.com Is The Gold Market Really Rigged?

• I've been looking at some charts and an astonishing pattern has become apparent. It's a pattern which, if you'd traded it methodically, would have earned you 1% every 20 days over a period of 24 years. That compounds to a staggering 2,050%!

• What is more astonishing is how this pattern has accelerated since 2007. Sell gold in the morning, buy it back in the afternoon, and a cool 1.78% 20-day profit will be yours:

• Finally, before I go, here's an interesting statistic for you: the first fixing was in September 1919 when the gold price was £4 18/9d per ounce. It's now more than £600. My, how well sterling has maintained its purchasing power. Here's a chart that tells you what a rotten investment the British pound has been ever since we came off the gold standard in 1914. It comes from a House of Commons research paper (03/82 11 Nov 2003 [pdf]) – so they know.

Now this very same posting was highlighted by Jesse: Is Gold and the Balance of Power Shifting from the West to the East?

Quote:

• We might agree with the surmise that it involves the steady selling of leased gold from the West into the gold markets, but that could only be confirmed by an audit, and an admission from some large central bank that they have been obligating increasingly large amounts of their inventory into the public markets in a previously undisclosed manner.
  
  The transaction costs are a problem if you are standing at the retail counter, we fear, so don't get any ideas about playing this trade. Its a sinecure for the big boys only, who can take advantage of market inefficiencies by trading in large, ever increasing volumes, like the whiz kids at LTCM did until they blew their trade book up.
  
  Oddly enough, the data from the Office of the Comptroller of the Currency report on Derivates shows that only two banks, JPM and HSBC, are holding almost $124,000,000,000 in gold derivatives between them, approximately 98% of all gold derivatives in the world.
  
  At $850 per ounce, that represents about 145,882,353 ounces of gold.
  
  As the tides of monetary bubbles recede, curiosities are turning up on the beach every day.

The chart and table provided by Jesse speaks volume on the issue! Do give Jesse's blog a read. :)

And do try google the phrase "Is The Gold Market Really Rigged? "

Shocked?

Another worth while reading is from Rob Kirby: Fed Manipulating Market Prices, Gold, Oil and Bonds

• In short, says Fell, "don't measure the Dollar against the Euro, or the Euro against the Yen, but measure all paper currencies against gold, because that's the ultimate test."
  
  Fell's admission coupled with the recently unearthed account of the Fed's game plan shows that gold “is” and always has been feared as competition for the U.S. Dollar and a game plan has long been in place to thwart it. This explains why economic data has been falsified and the price of gold has been surrepticiously managed and interfered with by the United States Treasury and the Federal Reserve.
  
  The mounting evidence is this regard is so compelling that from this point forward any ‘economist' attempting to explain our current situation without prefacing their explanation with an EXPLICIT ACKNOWLEDGEMENT that our capital markets are not free and are in fact RIGGED by officialdom – their analysis is not worth the time to read it. In this regard, perhaps never have more prescient words been uttered than GATA's Chris Powell in Washington in April, 2008 – when he opined, There are no markets anymore, just interventions .
  
  The recent decoupling in price of gold as measured by the spread between the futures price and the cost to obtain physical ounces is a stark reminder that smart money is beginning to repudiate fiat money by seeking tangible ownership of goods perceived to posses value instead of derivative ‘promises' to deliver the same.

Conspiracy Theory Involving Crude Oil

And here's one conspiracy theory involving crude oil.

Posted recently on Naked Capitalism: Oil Companies Storing Oil on Tankers, Waiting for Higher Prices

• I am not making this up, and this is NOT Iran, which has stored oil on tankers due to a lack of sufficient refining capacity for its heavy, nasty crude.
  
  Even though the long-term outlook for oil is for higher prices, holding oil already produced off the market is no panacea. But the intent is not to buffer declines, since the amount contracted to be stored at sea is still only a fraction of daily world demand. This is a a speculative move by the oil companies themselves rather than an effort to shift the supply/demand equation (although the oil companies may hope that the information value of their move, that they are confident enough that prices are "too low" to spend money on storage, may help put a floor under oil prices). And due to the falloff in shipping rates generally, tankers can be contracted at very low prices, making this a cheaper gamble than it would ordinarily be.
  
  We have noted before that above-ground oil storage is costly and not as tidy as one would imagine, so in cases like this, oil is not as easily stored as one might imagine.
  
  From Reuters (hat tip reader Michael)

Another View On Why Commodities Are Plunging

Blogged the other day: Conspiracy On How The Commodities Markets Were Rigged!

The GlobeAndMail carried the report on what Donald Coxe is saying, The real reason commodities are tumbling

• “This has done more damage to my personal wealth than anything in the last 20 years,” he said in an interview yesterday. But he has too much respect for how the U.S. authorities engineered the collapse in commodities – a move he said was necessary to shore up the global financial system – to be bitter.
  
  “My attitude is, goddamn it, they're good … it was brilliant.”
  
  To understand why commodities are plunging now – the S&P/TSX plummeted another 488 points yesterday – you have to go back to mid-July, when the U.S. Federal Reserve and Treasury first announced steps to support mortgage giants Fannie Mae and Freddie Mac.
  
  The move, which ultimately led to the Treasury taking control of Fannie and Freddie this week, touched off a chain-reaction of market events that culminated with the wrenching decline in commodities.
  
  According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets. To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets.
  
  Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions.
  
  At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished. The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains and other commodities.
  
  The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 per cent. “Leverage was being unwound dramatically,” Mr. Coxe said on a conference call last week. “We had a true panic.”
  
  As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed's wishes, because lower commodity prices would help quell fears about inflation.
  
  Mr. Coxe has no proof that the Fed and Treasury acted in concert to boost financials and sink commodities. He is basing his assertions on conversations with hedge fund managers and on years of watching financial markets. “There's no doubt whatever in my mind” about what happened, he says.
  
  The future is less certain, however. Now that Freddie and Fannie have been nationalized, the credit crisis is still very much alive and financial stocks are looking as shaky as ever. As for commodities, once the current storm passes, Mr. Coxe is confident they will recover.

On today's Financialsense.com market wrap, market commentator, Michael Shedlock made a rebuttal on Coxe's claims on his editorial, Commodity Bulls Jump the Shark

• While it is true the Treasury is guilty of blatant manipulation when it comes to the bailout of Fannie Mae and Freddie Mac, the dollar did not rise nor did oil or commodities drop because of it.
  
  Let's take a look at charts of the US dollar and crude in the aforementioned five days around July 11 when crude started to plunge.
  

  
  
  
  
  The chart clearly shows that crude started to plunge long before the dollar rally. Right off the bat we can clearly see Coxe is off on his timeframe in regards to action on the US dollar.
  
  Furthermore, the odds of a Fannie Mae bailout causing crude to plunge immediately but the dollar to stay flat for two weeks then soar are virtually zero.
  
  Yes, Coxe is correct that Paulson wanted to ignite a rally in financials, but when it comes to Fannie Mae (FNM), Washington Mutual (WM), Freddie Mac (FRE), Lehman (LEH), and others, I believe one needs to take a look at actual results before making claims of brilliant execution.
  
  Here are the actual results: Fannie Mae and Freddie Mac are both trading under $1. Lehman is under $4. Washington Mutual touched $1.75. Do "brilliantly executed plans" as Coxe puts it, always succeed so spectacularly? If that's success, pray tell what constitutes failure?
  
  The plain fact of the matter is there were many fundamental reasons for the dollar to rally, and it did. Likewise there were fundamental reasons for Fannie and Freddie to become worthless, and they did, in spite of admittedly massive intervention (manipulation).

Shedlock then continues..

• People will see what they want to see, but the dollar rallied because there was every fundamental reason for it to rally. Was there jawboning by Paulson and Trichet? Of course there was.
  
  However, the market ignored Paulson's jawboning for forever and a day, while Trichet's statements were in regards to a weakening Europe that is now clearly deteriorating rapidly. The dollar was poised to soar on the story of a weakening global economy that was supposed to decouple from the US but failed to do so.
  
  Carry Trade Blows Sky High
  
  A massive unwinding of the carry trade is now fueling the dollar rally. Huge speculation by traders shorting the Yen and going long the Euro, the Pound, the Australian Dollar, and the New Zealand Dollar is being unwound.
  
  Similarly there was massive speculation by traders shorting the dollar and going long the Euro, the Pound, the Australian Dollar, and the New Zealand Dollar. That too is being unwound.
  
  Those sorry bets were made on the misguided belief that Europe, Asia, and especially China would decouple from the US. In other words, massive bets were made that the tail would wag the dog. Now we see how foolish those bets were, especially for the Johnny-Come-Latelies who plowed into the trade just as it was about to reverse.
  
  New Zealand, Australia, Germany, Ireland, Spain, and the UK are in or rapidly sliding towards recession. This is an enormous fundamental factor and very supportive of a strengthening US dollar.
  
  Inquiring minds may wish to read Carry Trade Rout Continues for more details.

Do read rest of Shedlock's artiucle here

Conspiracy On How The Commodities Markets Were Rigged!

FinancialSense's market commentator, Rob Kirby has a very interesting piece on how the commodities markets were rigged!

1. .. In what many folks might disregard as an unimportant revelation, the Bank of Montreal’s Don Coxe provided in his weekly web-cast to the bank’s institutional and private banking clients, a telling descriptive [transcript available here] of recent market events where he lays out how the Federal Reserve and the U.S. Treasury in conjunction with the CFTC and SEC “RIGGED” the recent collapse in commodities complex and the accompanying bounce in financials to purposely destroy people who were making commodity bets and shorting financials.

Kirby continues..

1. The unintended beauty [sic] of Cox’s words is that they “drip” with nuance illustrating the incestuous relationship between the Federal Reserve / Treasury and one of their favorite private sector agent / provocateurs - Goldman Sachs.
   
   This space has extensively documented the role of both Goldman Sachs [primarily in the investment banking / commodities space] and J.P. Morgan Chase [primarily in the commercial banking / interest rate complex] and their use as “TOOLS” to implement Federal Reserve Monetary Policy via stealth, all the while trying to maintain the illusion of “free markets.”
   
   If my read on these goings-on is only half correct, this grand stage illusion of a charade is about to come to an end.

Read rest of it here: The Stars are Aligning - But For What?

How now Brown Cow?

Here's something to chew upon: Global Market Brief: China's Engineered Drop

• Feb. 28 and Beyond
  
  Follow-on crashes can come from one of three places.
  
  First, the Chinese believe their exchanges are massively overvalued (hence the engineered crash). They will do this again, and are not (yet) particularly concerned with the international consequences. China planned to dampen its own stock market, not the world's markets. Along with the rest of the world, Beijing did not expect the contagion effect to be so extreme. Yet, for now at least, China's own exchanges are its primary concern, and it will act according to that belief.
  
  Second, everyone else now is going to chew on the fact that Beijing did this intentionally. They will either agree with the Chinese that the exchanges are overvalued and that additional measures are needed, or they will be terrified that Beijing did this intentionally and not care about the reasons. Whether what is sold is a domestic Chinese firm or a foreign firm invested in China does not matter much. Neither does it matter if the stock is on an exchange in China or abroad. Either way, the reaction will be the same: Sell.
  
  Third, trading in 800 of the 1,400 stocks on the Shanghai exchange was suspended during the sudden drops Feb. 27; they have a lot farther to fall, even without any engineered drops caused by panicky selling.
  
  Considering the flaws on which the Chinese system is based, this certainly will not be the last engineered drop. In theory, the move will make foreign investors far more cautious before diving into the Chinese system, but as longtime Stratfor readers know, we have been wrong on the timing of that particular development before.
  
  

Subtle Manipulation

In today's FSO write-up, Rob Kirby writes about Fundamental Vs. Technical Analysis and More. This section of his editorial is utmost interesting.

Enjoy!

<<<<<----->>>>>

The Subtle Side of Molding Market Sentiment

Other times, manipulations are more subtle. An example is illustrated from my correspondence with this particular financial reporter just this past Friday. I make specific mention of this because this particular piece has actually made it onto the front page of the business section of one of Canada’s major daily newspapers today, December 11, 2006:

The piece in question was reported Friday by MarketWatch:

By Steve Goldstein, MarketWatch
Last Update: 8:50 AM ET Dec 8, 2006

LONDON (MarketWatch) -- Worries about the strength of the global economy pressured the metals sector in London share trading Friday, though a solid report on U.S. payrolls growth and speculation of banking takeovers helped lift shares of other top British companies.

Merrill Lynch downgraded the entire metals sector to neutral on economic-growth fears and concerns about the manipulation of metals prices. …

So I contacted the author:

Mr. Goldstein;
Could you elaborate on Merrill's comments about manipulation of metals prices?

"Merrill Lynch downgraded the entire metals sector to neutral on economic-growth fears and concerns about the manipulation of metals prices

Here was the response I got:

I'll quote what they said:

Our view is that spot metal prices have been pushed to over-inflated levels by hedge / investor fund manipulation (eg 1 investor holding >50% LME Al stocks), and that there is a much greater risk to the downside from spot prices than to the upside. With slower global demand growth likely in 2007, particularly in the US, and a likely de-stocking of metals inventory in the G7 after a very strong demand growth in 2006, the risks are that base metals prices could correct ~30% from current spot levels, and this would negatively impact the equities. We continue to believe in the super-cycle, that metals prices will be stronger for longer; however, this means stronger than long-term average prices, not stronger than current spot prices. History shows us that no matter how much we believe that weaker commodity prices are already factored into equity prices, if the commodity prices re-trace, the equity prices of leveraged stocks follow. Whilst metals prices have outperformed the equities on a 12-month view, over the last 6 months, global mining equities have outperformed the LME index. In fact, as seen by the Bloomberg World Mining index in the margin chart, equities have been moving higher in recent weeks and have recovered much of the sector pull-back that occurred in early November. The laggard has been the AsiaPac mining index. However, we remain convinced that if the metals prices do see a correction from current elevated spot positions, equity prices will also correct. It is amazing to us that despite statements that liquidity will continue to flow, when sentiment

So I replied with this;

Steven;
I wonder if you bothered to question them about "a likely de-stocking of metals inventory in the G7 after a very strong demand growth in 2006."

The reality is that de-stocking of base metals HAS ALREADY OCCURRED!! - witness the all time critical lows of copper, aluminum, lead, zinc and nickel in LME warehouses.

Before "DE-STOCKING" can occur in the future - INVENTORIES HAVE TO FIRST BE REBUILT.

Rebuilding of critically low inventories would CONTRADICT this forecast - wouldn't it?

Regards,
Rob Kirby

And Mr. Goldstein then replied with this;

You may well be right -- we pass on the news, leave it to you to accept or reject.
Cheers, Steve

The HUGE Issues Here

First, these "allegedly professional" mega financial institutions sometimes put forth fundamentally FALSE and often CONFLICTED research for unknowing, unsuspecting consumers and - Second - the media so often takes this false and / or conflicted research, asks few questions as to its veracity, and presents it to the public as "NEWS" and then – only if pressed / questioned or cornered – it’s like we’re "all free" to accept or reject what they report as news.

Whatever happened to responsible journalism where errant reporting led to a retraction and an apology?

I bring all of this to your attention for a few reasons. First, a general understanding of the differences between technical and fundamental analysis gives investors greater clarity in deciphering the blur or hype of economic reporting in today’s market place. Second, regardless of which discipline you’re an adherent of – your results will always be dependent on the quality of inputs or soundness of your assumptions. The lesson here is ‘be careful who or what you hitch your wagon to.’

Remember; there’s no such thing as a dumb question when it comes to your investments. Knowledge provides comfort and it’s the basis of power!

Because events like the ones described above have a great influence on what happens to your investments on a day to day basis, understanding what is affecting your investments and sometimes WHY – might just lead to a greater comfort level and a better night’s sleep!