RE:RE:RE:Manipulations or NOT ? Touareg
As I have said before, I think all financial markets are manipulated some of the time.
Regarding Comex gold and silver, I think the better term to use is “pushed around”.
Most of the Spec longs are easily pushed around by various special interests.
Some think it is by the Fed and Treasury through bullion banks.
This may be true but perpetrators may also include deep pocketed hedge funds who can play games by doing stuff like combining heavy shorting of futures with being long put options on futures.
Make a big profit on their puts and cover their shorts.
Even if they end up with no net profit on the shorts they will have made it on the puts.
The basic problem, as I see it is that the gold and silver markets depend too much on the futures trading for price discovery.
That has been the case for decades.
That may be the process of changing since Hong Kong, Shanghai, and soon Dubai will have exchanges for more physical delivery of PMs.
Comex delivers very little gold and silver.
When the marketplace depends on futures trading for major price discovery, it is depending on a market that can be very volatile due the thin margin requirements.
Small margins are important to have because the main purpose of futures trading is to hedge risk for those who are involved in the physical markets for metals.
Parties, such as miners, who have sold production forward or coin and bullion dealers who need a short hedge against the long inventories that they hold need futures markets.
So futures trading provides a very necessary function.
The challenge for the CME, which administers the Comex futures, is to provide an orderly market.
They do this through various rules and regulations.
When a large volume of trades occur overnight, in the electronic session it is easy to have large order imbalances reflecting too much selling to be absorbed by buyers, at reasonable prices, or too much buying that can overwhelm sellers.
It might be wise for Comex to limit the size of orders that can be sold by a single party in the overnight session and have those executed during the more liquid day session.
I don't know if that is workable or not.
Regarding what happened in the April 2013 sell-off, I don't know and I don't think anyone knows for sure.
However, during that period there was massive liquidation of gold from the GLD ETF and futures may have been involved in that liquidation process.
Since Comex trades around the clock, it can be used by players in any country of the world.
For instance, if a large holder of GLD was in the Middle East, Europe, or Asia, and they wanted to sell before the stock market opened, they could sell futures overnight and then sell their GLD position when the US market opened and cover their short.
An interesting question that I ask myself is: when gold had its big overnight sell-off, why weren't there bids under the market?
Futures are used by some sophisticated parties with deep pockets, who seek value.
Even in a thin market, if gold was trading for $1500 and suddenly it could be bought overnight for 1450 or 1425, why weren't there strong hands there to scoop up gold at bargain prices?
I don't know, but I suspect that may have been because gold was weak in the physical market and was not perceived to be a great value, even at the marked down prices.
One last thing.
While many players think that Comex determines the long term price of the metals, I think that they are badly mistaken.
Since Comex delivers very little metals, they have little influence on long term supply.
That supply and demand is determined in the physical markets.
If the POG is going higher, it will be because of factors that influence the motivation of large investors and speculators to hold gold.
These are macro-economic factors such as real interest rates, credit spreads, the yield curve, inflation expectations, and the health of the the banking sector.
The futures markets will simply go along for the ride.
Regarding Jim Sinclair, I like him and think he gives good advice regarding holding physical gold as insurance and for keeping limited amounts of cash in the US banking system.
But, I think he does his readers a disservice with his predictions of future prices for gold.
He has made big errors there and it is foolish to predict future prices because the future is unknown and he gives his readers unrealistic expectations, IMO.
Good luck!
goldguy