Gold Market Manipulation is a Myth

[Gosso]

jumping in here...curious your views on the Libor scandal....do you also deny that being a real scandal?

I don't know much about it.  It seems that LIBOR has always been a made up number, since it is based on a phone survey of the London banks rather than actual transactions.  I was trying to do a bit of reading on it, but none of it made a lot of sense.  When it comes to these complex financial shenanigans I tend to listen to Matt Levine since he seems to be one of the few financial commentators that isn't perpetually hyperventilating into a brown paper bag.  So just google his name and the scandal de jour.

[murphy_p_t]

point being libor is widely accepted...long term market manipulation. do those who deny gold market manip also deny that libor was a scandal and the fines paid were unjust?

[Gosso]

point being libor is widely accepted...long term market manipulation. do those who deny gold market manip also deny that libor was a scandal and the fines paid were unjust?

There is no doubt they attempted to move LIBOR up or down to suit their fancy, but the question is how much of an impact did this have?  I mean if moving LIBOR up 1 basis point helps one derivative contract, then wouldn't it also hurt another contract?  Is it a zero sum game?  And also if half the banks want LIBOR higher and the other half want it lower then wouldn't LIBOR just end up at the same average level?

So yeah the fines were deserved and a new system is required, but I think most of the outrage comes from simply the attempted manipulation, it is another question altogether on how successful it was.

Does this also happen in the gold market?  Maybe around the London gold fix, but that would primarily impact derivative contracts and other similar instruments.  I doubt it would have any meaningful impact on the price/trend of gold.  Here is an article from Matt Levine on Barclays manipulating the London gold fix: "Barclays Manipulated Gold as Soon as It Stopped Manipulating Libor".  The conclusion I get from that is there is some manipulation, but it has no significant impact.  And they are shutting down the London gold fix.

[mortalpawn]

Nothing at all suspicious about 9,000 short contracts for gold (20x the normal volume) being dumped on the lunchtime Asian markets in a minute or two (where liquidity is thinnest from a global perspective) at the same time every other day for the last month - right?
  http://www.zerohedge.com/news/2014-11-2 ... roid-moves

[Kbg]

Nothing at all suspicious about 9,000 short contracts for gold (20x the normal volume) being dumped on the lunchtime Asian markets in a minute or two (where liquidity is thinnest from a global perspective) at the same time every other day for the last month - right?
  http://www.zerohedge.com/news/2014-11-2 ... roid-moves

So what, if they are futures contracts someone is taking the other side. News flash: Micro manipulation is likely a daily occurrence in just about every instrument traded on the planet.

Gold has been selling off for quite a while now and treasuries are up greatly. Seems way more like fundamental economics at work to me than manipulation.

[craigr]

Nothing at all suspicious about 9,000 short contracts for gold (20x the normal volume) being dumped on the lunchtime Asian markets in a minute or two (where liquidity is thinnest from a global perspective) at the same time every other day for the last month - right?
  http://www.zerohedge.com/news/2014-11-2 ... roid-moves

So what, if they are futures contracts someone is taking the other side. News flash: Micro manipulation is likely a daily occurrence in just about every instrument traded on the planet.

Gold has been selling off for quite a while now and treasuries are up greatly. Seems way more like fundamental economics at work to me than manipulation.

To add to this: If you aren't out there trading against these guys, what they do day to day makes zero difference to you. Let them fight amongst themselves and just sit back and collect on their folly. Each trader takes an opposing side and they have equal information. One will be right. One will be wrong. If they both have access to largely the same information, and reach 180 degree opposite conclusions on a trade (buyer vs. seller), then they are both making decisions based on random information.

Market timing and predicting doesn't work. I make a ton of money off market timers by sitting back and doing nothing. I love seeing those guys flail around sniffing out pennies from each other while I'm shoving dollars into my pockets. Market timers and traders are my easiest money bar none. I love them and love people that buy into all that junk. They are just handing me dough.

https://web.archive.org/web/20160324133 ... et-timers/

[MachineGhost]

Market timing and predicting doesn't work. I make a ton of money off market timers by sitting back and doing nothing. I love seeing those guys flail around sniffing out pennies from each other while I'm shoving dollars into my pockets. Market timers and traders are my easiest money bar none. I love them and love people that buy into all that junk. They are just handing me dough.

Interesting rationalization, but zero-sum assumes that there are no winners ever, which is demonstratably false.  Passive buy and holders, as well as the consistent winning active investors, market timers, traders, brokers and marketmakers, are collectively acquiring all of the gains from the losers of every stripe and color that are interacting in the marketplace.  Your share of that as a passive buy and holder is the relative smallest because you're already operating at the maximum liquidity constraints from "buying the market" that everyone would eventually reach if they are consistently successful (i.e. no one can ever own the entire market so high initial returns decline as available liquidity decreases).  So all roads lead to the same ultimate utopia, but the path dependency is completely different depending on the risk control, time frequency (opportunites to compound) and starting capital.

[buddtholomew]

Market timing and predicting doesn't work. I make a ton of money off market timers by sitting back and doing nothing. I love seeing those guys flail around sniffing out pennies from each other while I'm shoving dollars into my pockets. Market timers and traders are my easiest money bar none. I love them and love people that buy into all that junk. They are just handing me dough.

as well as the consistent winning active investors, market timers, traders, brokers and marketmakers, are collectively acquiring all of the gains from the losers of every stripe and color that are interacting in the marketplace

You assume that there are only two groups, winners and losers. An active investor, market timer, etc. can be both a winner and a loser...

[craigr]

Market timing and predicting doesn't work. I make a ton of money off market timers by sitting back and doing nothing. I love seeing those guys flail around sniffing out pennies from each other while I'm shoving dollars into my pockets. Market timers and traders are my easiest money bar none. I love them and love people that buy into all that junk. They are just handing me dough.

Interesting rationalization, but zero-sum assumes that there are no winners ever, which is demonstratably false.

I'm not sure if you are saying the stock market is zero-sum? I don't think investing a zero-sum game myself.

The basic thrust really is that there are a lot of friction points involved in trading a portfolio from transaction costs, taxes, missed opportunities, and emotional. These friction points are very expensive compared to the investor that sits back and does very little. Also, traders tend to react very badly to market news and oversell or overbuy assets. Someone that is following a mechanical rebalancing strategy can take advantage of these situations and take extra money off them over time.

[barrett]

The basic thrust really is that there are a lot of friction points involved in trading a portfolio from transaction costs, taxes, missed opportunities, and emotional. These friction points are very expensive compared to the investor that sits back and does very little. Also, traders tend to react very badly to market news and oversell or overbuy assets. Someone that is following a mechanical rebalancing strategy can take advantage of these situations and take extra money off them over time.

Craig, Have you written about this in depth anywhere? I've seen you post about it a couple of times here and also listened to an excellent PP interview you did a few years ago where you said something like "I'm happy to just sit back and take your money." I mean, I kinda understand the idea but would like to really grasp it completely. Thanks.

[MachineGhost]

Craig, Have you written about this in depth anywhere? I've seen you post about it a couple of times here and also listened to an excellent PP interview you did a few years ago where you said something like "I'm happy to just sit back and take your money." I mean, I kinda understand the idea but would like to really grasp it completely. Thanks.

What he means is let the cognitivally-biased fools battle it out and he'll collect the fallout from acting rational (i.e. dollar cost averaging and rebalancing low, selling high).  The point is to come out ahead in this game long-term, you must not engage in any emotionally-based detrimental behavior since you're liable to be part of the emotional herd and they're always wrong at turning points.  Turning points and sentiment shifts are fractal so they extend across all time spans. 

For example, even though I made a "rational" decision to dump my losing bonds on 12/31 last year to take the loss as a tax writeoff, apparantly so did everyone else as that was the bottom of the current upleg.  That kind of "miss" is even more aggravating when you're being systematic than some cocky, seat-of-his-pants "Top Gun" wannabe.

[AdamA]

Craig, Have you written about this in depth anywhere? I've seen you post about it a couple of times here and also listened to an excellent PP interview you did a few years ago where you said something like "I'm happy to just sit back and take your money." I mean, I kinda understand the idea but would like to really grasp it completely. Thanks.

Here's a good post from his blog.  Don't underestimate his point about the emotional component of market timing strategies.

https://web.archive.org/web/20160324133 ... e-problem/

[Reub]

Speaking of manipulation, did you see this today?:

"Goldman, BASF, HSBC accused of metals price fixing: U.S. lawsuit

Goldman Sachs Group Inc (GS.N), Germany's BASF SE (BASFn.DE) and two other big platinum and palladium dealers have been sued in the United States in what the plaintiff's law firm called the first nationwide class action over alleged price-fixing of the metals."

http://www.reuters.com/article/2014/11/ ... T120141126

[craigr]

Craig, Have you written about this in depth anywhere? I've seen you post about it a couple of times here and also listened to an excellent PP interview you did a few years ago where you said something like "I'm happy to just sit back and take your money." I mean, I kinda understand the idea but would like to really grasp it completely. Thanks.

What he means is let the cognitivally-biased fools battle it out and he'll collect the fallout from acting rational (i.e. dollar cost averaging and rebalancing low, selling high).  The point is to come out ahead in this game long-term, you must not engage in any emotionally-based detrimental behavior since you're liable to be part of the emotional herd and they're always wrong at turning points.  Turning points and sentiment shifts are fractal so they extend across all time spans. 

Yep this is pretty much it. A rigid plan that keeps emotions out of the equation just works better long term.

[MachineGhost]

Yep this is pretty much it. A rigid plan that keeps emotions out of the equation just works better long term.

I do believe that is the only real edge in the market.  All the "anomalies" are ultimately behaviorally based.