05 April 2012

Gold Daily and Silver Weekly Charts - The Dr. Evil Strategy and Some Targets

"The exact methodology being deployed that enables the dominant commercial traders to pull this scam off repetitively, aside from outright collusion, is High Frequency Trading (HFT). HFT is the collusive bundling of advanced computer hardware and software that is so advanced and powerful that it has achieved the power to move prices sharply with little actual trading required in setting prices. The way HFT works is that the collusive trading programs suddenly flash great numbers of contracts for sale. But before much actual selling occurs, all the other traders in the market see the great volumes of contracts apparently offered for sale and these other traders withdraw buy orders and start entering their own sell orders to get ahead of the great wave of HFT sell orders offered. Then a not so funny thing happens. Most of the time, very few of the HFT orders originally offered for sale get filled or executed. Instead, they are quickly cancelled. There's even an operative term for this practice that's perfect – spoofing.

Most of the HFT orders are never filled, nor are they ever intended to be filled. These spoof orders are intended to scare others into selling so that the dominant commercial traders can buy gold and silver contracts. And make no mistake, this phony HFT activity has been successful, to the great shame of the regulators at the CFTC, who know that this manipulative trading is against commodity law. The proof that it is manipulative trading lies in the data published by the CFTC. That data shows the big dominant commercial traders are always the big net buyers on the big down days. It is not possible for that to be coincidence; it as close to cause and effect as is possible."

Ted Butler, Butler Research

“The tactic is always the same. The gold banks enter the COMEX and offer more gold for sale at the market than has been mined in the last five years. Immediately, the locals (pit traders) try to run in front and hit any bids they happen to have on their book or are out there in order to get the price down.

Gold tanks down to the $1,640 level and now the brokers for the gold banks begin to enter the market to cover shorts to reduce the short position taken, and most likely to completely flatten it on the day. This has been going on from 1968 to 1980 and it’s also been going on from 2001 to today. The net effect is absolutely nothing."

Jim Sinclair, KWN

“Gold has to get through $1,800. $1,600 has to hold in the short-term. $1,550 to $1,600 is okay, but I wouldn’t like to see a move to the lower end of that range because your uptrend and support are coming in right now around $1,600.

Gold has a horizontal consolidation in place. I was disappointed gold couldn’t break $1,800 previously, but again, sideways is okay. This sideways action is healthy, this consolidation, but gold now has to prove itself.”

Louise Yamada, KWN

"These big plunges in price look to be driven by short selling, with weak hands being driven out, and then short covering or determined buyers stepping back in to maintain the overall number of contracts at a relatively steady level, but with some good profits from covering their short positions at cheaper prices. There is also a lucrative cross trade to be had in other markets like the mining stocks. An operation in bullion is often preceded by some noticeable movements in the miners.

Recall the case in the Euro bond market, wherein Citi came in and sold an enormous volume precipitously, running the stops and driving the price down sharply. The Citi trader came back in and covered his shorts, pocketing the difference in his market disruption based on size. This trading strategy was known as 'the Dr. Evil' trade at Citi, but has deep roots in speculative market manipulation, with the counterpart to a bear raid being the longer term bull pool.

I recall reading at the time [that it was fined for disrupting the eurobond markets] how the Citi traders were incredulous at being outed by the regulators, because that is how they would do things in the States, running the stops and using outsized positions to perform short term price manipulation. In the states 'price management' has become quite notorious around key market events, such as option expiration.

It is so prevalent that it has its own momentum among traders. The only time that it is remarked by the exchanges in the states, however, is when other prop trading desks are caught by it unawares and complain. The public is fair game."

Jesse, Bear Raid In Gold - Memories of Citi's Eurobond Price Manipulation, December 2009

I had a little chuckle a few weeks ago.  Someone wrote in and asked that I stop referring to precipitous decline in the price of the metals as 'bear raids.'  Well, not all declines are bear raids, but the hallmark of such a market operation is fairly obvious to someone watching the tape all day.  And they are not exactly subtle at times.  If you want to be in the markets, you need to know these things, and if they upset you, well then you should probably be reading the funny papers, or watching your favorite financial news station, which is equally diverting.  They will make you mindlessly content, at least for the time being.

In a somewhat unusual circumstance, the BLS has decided to release the Non-Farm Payrolls number tomorrow even though US markets will be closed.

Since gold, and to a lesser extent silver, typically get hit around NFP days, we might attribute the action that was tied to the FOMC minutes release and the PM fix to that.

Chart-wise I am very comfortable with a short term decline in gold to the 1580 level, although I would be a little concerned if it should break support at 1550 and stick a few daily closes down there.

This all looks like a long sideways consolidation within a broad symmetrical triangle. But we have to let the market instruct us, and that will only come over the next few weeks, and maybe months.

This notion that the Fed will not be stimulating the economy and subsidizing the debt through a rolling monetization is a fairy tale.

The words may change, but the song remains the same.
Ben Bernanke Was a Money Printin' Man.