RE: RE: How Precious Metals Spot Prices are Derive Bell, Wins, or anyone else interested, I'm curious how much "stock" you give to the rest of this blog piece. I'm not into conspiracy theories and usually will dismiss a majority of market manipulation posts. I understand that penny skimming is common and other relatively short-term games also take place.
But could this system lead to longer term, larger scale disfunctions in precious metals pricing. For example, would it be possible for the top three MM in PGMs, who may hold a large stake in the metal, to use their levered futures trading to suppress PGM prices to the point of SA shaft closures (as Pt price would no longer high enough to sustain viability). Then they could enjoy a managed rebound as the impending deficit creates a shortage that cannot be addressed with any speed, given the ramp up time required in mining.
Here's a section that got me thinking (from the first link):
"There is always a wholesale cost and a retail price with a markup. That is not an issue. What seems to be the problem is that when a few players can crush price with paper positions, this tends to remove the discpline of arbitrage of market mispricing from the picture. This is the only part of the efficient markets hypothesis that ever made any sense. If there is a price discrepancy, market players will move in to fill it. This is the case against manipulation.
Except they cannot really address any serious market mispricing because the price is set in the paper markets which are not amenable to efficient arbitrage. Unlimited leverage through derivatives, and the willingness of central banks to sell into the gold market to manage price spikes, again as Chairman Greenspan admitted, takes care of that. Not even a motivated buyer with deep enough pockets like China would take on this market openly because all they would do is buy against themselves, and drive a default which would be cash settled by force.??
You might ask at this point, why would anyone ever wish to engage themselves in this market, besides those who must obtain supply for industrial or cosmetic uses? Few do actually, except to buy physical bullion at the retail level, and hold it as protection against the devaluation of currency and the monetization of the debt.??
There are always professional speculators, but they tend to go with the momentum for the reasons outlined above. Its an easy trade. I sometimes play the arb myself, or at least maintain an awareness of it. You can't fight the Fed in the short term, and the financial engineers and statists hate anything that threatens to rival or even limit their power. But that does not mean that one might not insure themselves against the eventual failure of the new masters of the universe to control the large forces and unintended consequences of world markets. What I find so disappointing is that Greenspan knew all this. and wrote eloquently about it, before he sold himself to those who he had spent the bloom of his intellect opposing. I was never interested in this subject until I started reading his various biographies to understand his thinking better in the late 1990's, and then went on to read his early works on the state and freedom. If he had been a more noble figure his fall might have been a tragedy. As it is, it just seems to be another dishonorable failure of stewardship and conscience.??
This is what you have. Whether it works well or not is another matter and it seems a personal opinion heavily biased on where you sit at the playing table. But from a purely economic perspective if I were going to set up a mechanism to allow price fixing and fraud to occur, I could do little better, except perhaps to set up something more like an opaque monopoly such as the Federal Reserve with the ability to create supply out of nothing. The investors and producers are largely at the mercy of those who control the paper markets And this says nothing about the involvement of the central banks in influencing the price, which they admit that they do, if only obliquely.??
Sure one can say. If you don't like the price you can keep taking delivery, except that you can't. The price is set on the Comex, which delivers paper dollars at will, and has a history of changing its rules at the drop of a hat to rescue trapped suppliers and speculative shorts. This is the sort of odd market that resolves itself in executive actions precipitated by breakdowns and default."