A Tale of Two Markets: Gold Market Manipulation in NY and London

"It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes... There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing."

Andrew Jackson, Veto Message of the Second Central Bank of the United States

Thanks to two hard working and exceptionally clever analysts, we have a clear picture of the regularity with which the world price of gold has been manipulated by paper trading in New York and London.

Nick Laird, the data wrangler of Sharelynx.com, has constructed a five year rolling average of price movements for gold throughout the day.   Given that this is five years worth of data, it would be very difficult to say that it is some sort of anomaly.

And thanks also to Dave Kranzler, of Investment Research Dynamics, who has been insightful in his markings on the chart to show the significance of the price movements.  Dave manages a hedge fund specializing in precious metals, and also offers research reports on mining companies which is his area of greatest investment interest.

I have added a few things to Dave's work, because compared to the Denver bronco I am a bit more challenged by age in reading small, pale type on charts.

As you can see on the chart below, gold almost invariably rises during Asian trading hours, where the predominantly physical trade is engage in the price discovery of bullion.

After the Asian trading markets close, gold typically begins a precipitous drop, culminating in an initial bottom around the London AM fix.

The London price fix (fix, what an ironically appropriate name in American slang) is conducted in the United States dollar (USD), the Pound sterling (GBP), and the Euro (EUR) daily at 10.30am and 3pm, London time. The fix used to be conducted in meetings on the premises of N. M. Rothschild & Sons by the members of The London Gold Market Fixing Ltd. In 2004 Rothschild exited that position in London, and sold its seat in the operation to Barclays Bank.

Since that time the AM and PM Gold Fix have been set on a private conference call by Barclays, HSBC, Société Générale, and Scotia-Mocatta.

 

Barclays, among others, played a prominent role in the recent LIBOR rigging scandal, as you may recall.  The similarities between the LIBOR fix and the Gold Fix are interesting.

 

The London regulators have been actively working to replace the London Gold Fix, which really is a holdover from the overtly government controlled gold markets of the last century.  A recent news story relates that the Gold Fix will now be managed by ICE, a US based conglomerate of exchanges backed by the major Banks among others.  You may read more about ICE here. 

"Intercontinental Exchange Inc.’s IBA will provide a price platform, methodology and administer the procedure that now takes place by phone each day at 10:30 a.m. and 3 p.m., the London Bullion Market Association and ICE said today in statements. Societe Generale SA, Bank of Nova Scotia, HSBC Holdings Plc and Barclays Plc currently conduct the fixings used by miners to central banks to trade and value metal."

There is no mention of what steps the CFTC is taking to change anything about the manner in which the US gold futures business is conducted, even though it is clearly part of the paper rigging. Perhaps they assume that whatever changes the ICE introduces in London which provide a more reliable and transparent platform for trading in New York.  Talk about foxes and henhouses.

I think it is important that we understand that the world has bifurcated into two precious metals markets, one of paper and leverage, and the other of price discovery and physical bullion.  And that this is no rogue trading operation.  It is a pool that has been established to manipulate the market.  It almost doesn't matter who believes or doesn't believe it anymore.  The die is cast, and the invisible hand is getting ready to set forth a banquet of consequences.

 

History suggests that when the price of the metals, having been long suppressed for years apparently, revert to the natural demands of the market, and rocket to the upside, that we should feel no sympathy for the manipulators' discomfort.  Or any willingness to bail them out yet again, I would hope.  

And as for the semi-official participants, such as former central bankers, politicians, and regulators, I suspect that they will tell the usual lies, and seek to rewrite history to save their own highborn skins.  Some of that appears to be going on already, by those of them who are more astutely aware that the jig may be almost up.

And we will continue to pretend to believe them. 

 

Non-Farm Payrolls Report for October - Birth Death Model to the Rescue

As you may have already heard there was a 'miss' in the new jobs added in the October Non-Farm Payrolls Report.

There were some other troubling aspects in that report that I will discuss in the stock commentary tonight, but I did wish to point out an outlier in the way in which the number was constructed.

As you can see in the first chart below, the number of jobs added in the BLS Birth-Death Model was higher than the usual number we have seen for the past six years. 

This is certainly not the worst outlier.  As you can see, April 2008 was a banner month for imaginary jobs, with which to welcome the new President.

This number is the estimate of how many jobs were added or subtracted by new or small businesses not captured in ordinary reporting.   In my mind, it is such a creature of estimation as to just be a 'plug.'

In the second chart I show the 'headline number' of jobs added with the seasonalized number of imaginary jobs from the Birth Death model subtracted out.

As a reminder, the month to month variations in the headline number are of primary interest to politicians and the stock markets, and will likely be changed and revised quite a bit in the future, when no one seems to care. A more meaningful number is the twelve month moving average. But that gives less opportunity to game stocks and grab headlines.

And as an aside, the headline unemployment rate, which continued 'to improve' is a disgraceful indicator that ought to be ashamed to go out in public, as it so grossly misstates the underlying economic reality of things.  It is like the Dow Jones Industrial Average of economic indicators.  They both throw out all that they define as 'losers' to make their numbers look better.

It does add some volatility which is why I think that the Birth-Death estimate is just a plug created by the BLS statisticians.

And in this report, it appears they were very generous in assuming the number of jobs that were added.  I wonder how they justify this?

Gold Daily and Silver Weekly Charts - Pity the Swiss

"England may as well dam up the waters of the Nile with bulrushes as to fetter the step of Freedom, more proud and firm in this youthful land than where she treads the sequestered glens of Scotland, or couches herself among the magnificent mountains of Switzerland."

Lydia Maria Child, The Rebels, or Boston before the Revolution

Pity the poor Swiss. 

The Bankers and the power brokers are frightening them with dire consequences if they should exercise their freedom and politely request that their gold be returned to them, to be kept within their national borders.

Why should they resist?  This is not done in the well developed, sophisticated nations.  Why should anyone wish to hold their own wealth?  Better to give it to someone else to hold, someone who is more intelligent and capable.

And why stop at gold?   The Swiss must be foolish, to trouble themselves with keeping the arms with which to defend themselves in their own homes, with heavier weapons such as planes and artillery tucked away here and there in their cantons.  What inefficient nonsense.

Wouldn't it make more sense to send all this weaponry overseas, let's say to New York, for safekeeping?   If they wish to sell, replace, or repair it, it would be much cheaper to do it in one of the countries that are major arms suppliers to the world.

What else do the Swiss cherish?   Perhaps they should sell their children into indentured servitude, so they do not have to trouble their minds about educating and caring for them.   The Banks and the State can surely do a better job than they.  Or perhaps they should sell them to the nation builders in New York or London, where the management of population is done more efficiently and effectively.

Freedom is a burden.  And wealth just creates more worries.  Better to hand it over to one of the world's great powers for safekeeping.    Change is too risky.

You will surely never have to think again of it, or even see it, for a very long time.  It will be as though it is not even there.

Say yes to servitude.   Vote no on repatriating your nation's wealth.  Do not make the same mistake as the Germans.

All the English speaking countries are doing it.   Look how well the centralization of wealth in fewer and fewer hands is working for England and America, in Australia and Canada.  Their people sleep extraordinarily well.  In fact, it is often hard to tell if they are ever truly awake.

 

Have a pleasant evening.

 

SP 500 and NDX Futures Daily Charts - Bliss

“I know not why anyone but a schoolboy in his declamation should whine over the Commonwealth of Rome, which grew great only by the misery of the rest of mankind.

The Romans, like others, as soon as they grew rich, grew corrupt; and in their corruption sold the lives and freedoms of themselves, and of one another.”

Samuel Johnson

Stocks continued drifting higher today ahead of the Non-Farm Payrolls number tomorrow.

All is quiet in the Pax Americana.  The natives are blissfully uninformed.

Did they know there were protests in London and Brussels? 

No, they only hear of the latest fashions, and dark tales of the evil Russian, which are quickly dispelled by the posturing of Taylor Swift, and here and there, gossip about power struggles in the Capitol District.

Have a pleasant evening.