The Mechanics of Precious Metals Price Manipulation

When I used to spreadbet as well as trading shares, I believed that stock and commodity markets were free. Over time, the companies and commodities I had extensively researched and bought into, I learnt, to my detriment (on some trades) that the share price didn’t behave like it operated in a free market. At times they would rapidly increase and decrease in price, good news would send the price down and some companies just gave false information (RNS). After researching into stock price movements, how markets are operated and regulated, HFT’s, dark pools and insider trading I realised I’d been lied too. The game is rigged and I did not wish to be part of that market so I withdrew my capital. I did not want to trade short term on fallacies because there is always someone on the other side of the trade, someone like me but unaware the game is manipulated on a monumental scale. Courtesy of Silver-coin Investor:

Much confusion persists regarding the method, or mechanics, of how the big banks are able to push the price of precious metals around at will for so long.

GATA and Ted Butler have long established and outlined the reasons why this occurs (legally). They have also established the foundation that forms the basis of how the manipulation unfolds. Despite very clear and concise commentary, the message sometimes becomes diluted in its distribution. This situation makes for easy picking from the hard-core opposition who mainly reside, ironically, as part of the professional mining and trading community.

The confusion comes from declarations that on price drops, the bullion banks are selling. This then triggers the frequent and violent down-drafts we have witnessed over the last 2 years and counting. However, the trading data indicates the contrary. Commitment of Traders (COT) data shows that the big banks always buy on these dips and they always sell on rallies. Always. (This is clear evidence of manipulation in and of itself.)

So how do they get the price moving in one direction or another, usually to the downside?

The mechanism is made clear by the forensic analysts at NANEX, which provides documented real time price action down to the microsecond.

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Stacking the Bid with Fill and Kill

Via high frequency trading, the big banks are able to stack the bid with spoof orders because of their size and privilege. They are able to place the trades in large size because of their already super-concentrated short (and long in the case of gold) corners. This issue, along with no governor on position limits, also constitutes manipulation on its own.

This technique has been around the HFT world for years and is otherwise known as “fill and kill”‚ trades. The price for these contracts is impossible to fill, so the transaction never closes. However, the bid lasts long enough to trigger speculative funds (hedge funds) to respond (via their own algorithms) into automatic selling and down goes the price.

In the aftermath, the big banks are ready and willing to buy. And they clean up, as it is revealed when the COT data is released a week later. The reverse happens on the way up.

Who has the ability to out a trade on like that?

These sudden moves appear around market opens and coincide with the overlap between the London fixes and the COMEX open. These millisecond trades that have ‘broken’ the CME platform more than a few times over the last 6 months are fill and kill trades.

These are naturally active sessions of which, on at least four occasions over the last 6 months, the CME has needed to stop trading because of the sudden surge in liquidity.

The resulting price action forms the foundation of the technical analysis. It also forms the popular commentary as to why the price moved this way or that, which of course really has not much to do with those exogenous events.

Opponents, mainly those in the professional trading community, will often misrepresent or attack the wrong argument. It is natural that most of us desire to imagine we are part of an ethical system and not operating in a rigged
casino.

That the miners remain largely mute on the issue may be simply due to their dependence on the very banks that control the price.

The Broader Effect

Are the big banks intervening in all markets?

Many will often point out in opposition to sweeping statements about manipulation by the FED or the government. They will dispute that surely they cannot be involved in corn, wheat, and other commodities.

Maybe so, probably not.

The very same analysis of trading structure analysis can be applied to other commodity markets.

The fact that other commodity markets are also down doesn’t necessarily mean that JPM is acting in all markets. But surely these ‘other’ commodities take their signal from the indications put out by PM performance. Like it or not, precious metals may be peripheral, but remain as peripheral assets. However, they are a permanent guide to inflation expectations.

What the FED Wants

The Gold Antitrust Action Committee (GATA) has quietly built a huge archive of evidence fully revealing the role of government in the covert manipulation of the gold market. But the Fed doesn’t have to be involved on a day to day basis. They are by proxy given their status as regulator. Additionally, to a large degree they are members of the Federal Reserve because of the banks which own these outsize positions.

The big banks (aka, the bullion banks) are simply allowed to do it. And they prosper as a result.

Nothing much has changed in the strategy by which concentrated power wields control over markets. The technology simply adds speed and blocks detection. The question, of course, is when will this end – if ever? The answer is impossible to say, though the inevitability that it will end at some point is guaranteed – just as the sun will come up tomorrow.

But the effect of the price distortions on the physical markets underlying (the interest rate of money, the wider financial system fragility and the economies they threaten) is the crimes of the century.

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