We’ve seen this movie before. | Most notably, it occurred in April of 2013, when high-frequency traders (HFTs) pocketed a billion or so dollars by taking the gold price down more than $250 over the course of two trading sessions. | They did it again on Sunday night. | First, as background, the upside surprise on the jobs number on Friday morning, with 943,000 jobs created against the consensus expectation of 870,000, was just the excuse the speculators needed to send gold and silver tumbling that day.
By the end of the beat-down, gold ended down $41.00 (2.27%) at $1,763.10 bid. Silver unfortunately exhibited its knack for leveraging gold, this time in a bad way, by dropping $0.77 (3.04%) to $24.47.
Then came Sunday night’s debacle.
Using Friday’s jobs number as cover…and taking advantage of the thinnest of thin trading environments (just as New York Globex trading opened but Hong Kong had yet to open, and exacerbated by holidays in Singapore and Japan)…one or more high-frequency traders acted in concert and in violation of position limits (i.e,, illegally) to precipitate a flash-crash in gold.
They took the paper gold markets down about $80 in a relative minute or two, down to around $1,680.
Some may think this was a normal follow-through, but it was so obviously a manipulated attack on a vulnerable market that any argument to the contrary can be dismissed out of hand.
Typically, these moves enable nimble trading firms that can employ just $150 million or so to rake in over a billion in profits over the span of minutes, and I’m confident that’s what happened Sunday night. | Rest assured that they won’t be investigated for violating position limits and orchestrating the attack. They’re going to get away clean. | I could go on in describing what happened Sunday in great detail, but whatever I write here won’t be nearly as good as the summary penned by Ronan Manly of BullionStar.
I urge you to read his fascinating play-by-play recap of this latest criminal manipulation.
The only area in which I have some disagreement with Manly is that he fully credits the caper to government/central bank actors attempting to discredit gold as an alternative to their fiat con game.
I think that’s certainly possible, but these manipulations are more likely the result of HFTs using not only gold and silver, but other similarly-sized markets to reap quick, rich, ill-gotten gains.
As far as where we are now, it is encouraging that gold bounced back quickly from the smash, although that’s more likely a result of the HFTs quickly reversing their trades, buying back their shorts (and possibly even going long) at the bottom.
And gold is up about $14 today, in reaction to the latest CPI report showing inflation still running hot, at a 5.4% annual headline rate. Regardless of what Fed officials might say, inflation isn’t going away. In fact, it should accelerate from these levels as higher rents — which are about 30% of the CPI calculation — have yet to be factored in. | The bottom line is that, whoever was behind the flash crash in gold and silver, the end result is an oversold market and a buying opportunity. | We will continue to see volatility as the Fed messaging goes through a transition phase, and indications are that gold could continue to weaken or trade sideways for the next few weeks.
But history shows us that any Fed action toward tightening monetary policy will actually mark a bottom in the gold price, and release the selling pressure from the traders.
So current levels are bargains that should be taken advantage of. | | | |