Gold Market Manipulation is a Myth

Discussion of the Gold portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
mortalpawn
Full Member
Full Member
Posts: 91
Joined: Tue Aug 13, 2013 11:06 pm

Re: Gold Market Manipulation is a Myth

Post by mortalpawn » Wed Nov 12, 2014 7:16 pm

Libertarian666 wrote: Why are you repeating these conspiracy theories?
Sorry - did not mean to muddy up the discussion with the presentation of facts.  UBS is just one of many - but today we hear from Swiss Government regulators:
Switzerland's financial watchdog said on Wednesday it had found a "clear attempt" to manipulate precious metals price benchmarks during a cross-market investigation into trading at UBS bank.
  http://www.reuters.com/article/2014/11/ ... Z420141112

These stories are on mainstream media now (Businessweek, Reuters, etc...) and not just the "gold bug" and "tinfoil hat" web sites.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Gold Market Manipulation is a Myth

Post by MachineGhost » Wed Nov 12, 2014 8:15 pm

Libertarian666 wrote: Oh, because they are facts rather than theories. How rude of anyone to point that out!  :P
:o
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
Jan Van
Executive Member
Executive Member
Posts: 717
Joined: Thu Jun 17, 2010 5:42 am
Location: Charlotte, NC

Re: Gold Market Manipulation is a Myth

Post by Jan Van » Thu Nov 13, 2014 10:45 am

Well, now that they have to pay up these large sums of money, I'm sure they are really scared and will never do it again! problem solved!
"Well, if you're gonna sin you might as well be original" -- Mike "The Cool-Person"
"Yeah, well, that’s just, like, your opinion, man" -- The Dude
User avatar
craigr
Administrator
Administrator
Posts: 2540
Joined: Sun Apr 25, 2010 9:26 pm

Re: Gold Market Manipulation is a Myth

Post by craigr » Fri Nov 14, 2014 4:02 pm

Short-term, market manipulation could happen. But long-term there is no way to keep the water from spilling over the dam if it wants. The people thinking they have market X under their thumb are fooling themselves just as much as others trying to trade against them.

The key point from the blog post is this:
...I don’t follow the gold manipulation arguments. Sure it could happen and if you are short-term trading you can get caught up in that kind of activity. But for a long-term buyer of gold (or stocks, bonds, etc.) market manipulation risk is of no concern because you aren’t out there trying to trade against those guys. In the situation of gold, if there were a major global currency crisis, or even a currency crisis in the U.S. dollar, there is nobody on this planet that is going to be able to keep the price under control. It just isn’t possible. There will be too many people running for the exits.
I think this is where a lot of traders get burned. If you are short-term trading any asset (gold, stocks, bonds, etc.) you are in the wolf's den. If you are a long-term investor, who is not trying to beat the market, the chances of you getting burned by price manipulation is extremely low. Just don't play the trading game and you won't get burned by other traders.
User avatar
Gosso
Executive Member
Executive Member
Posts: 1052
Joined: Fri Jan 06, 2012 8:22 am
Location: Canada

Re: Gold Market Manipulation is a Myth

Post by Gosso » Fri Nov 14, 2014 4:53 pm

I was just reading through Jesse Livermore's Reminiscences of a Stock Operator and came across this passage, which made me think of all the claims of market manipualtion in the gold market:
Reminiscences of a Stock Operator wrote:As I have said a thousand times, no manipulation can put stocks down and keep them down. There is nothing mysterious about this. The reason is plain to everybody who will take the trouble to think about it half a minute. Suppose an operator raided a stock that is, put the price down to a level below its real value what would inevitably happen? Why, the raider would at once be up against the best kind of inside buying. The people who know what a stock is worth will always buy it when it is selling at bargain prices. If the insiders are not able to buy, it will be because general conditions are against their free command of their own resources, and such conditions are not bull conditions. When people speak about raids the inference is that the raids are unjustified; almost criminal. But selling a stock down to a price much below what it is worth is mighty dangerous business. It is well to bear in mind that a raided stock that fails to rally is not getting much inside buying and where there is a raid that is, unjustified short selling there is usually apt to be inside buying; and when there is that, the price does not stay down. I should say that in ninety-nine cases out of a hundred, so-called raids are really legitimate declines, accelerated at times but not primarily caused by the operations of a professional trader, however big a line he may be able to swing.
If Jesse Livermore and Craigr agree then that's good enough for me.  :)
Last edited by Gosso on Fri Nov 14, 2014 5:04 pm, edited 1 time in total.
User avatar
craigr
Administrator
Administrator
Posts: 2540
Joined: Sun Apr 25, 2010 9:26 pm

Re: Gold Market Manipulation is a Myth

Post by craigr » Sat Nov 15, 2014 3:05 pm

Gosso wrote: I was just reading through Jesse Livermore's Reminiscences of a Stock Operator and came across this passage, which made me think of all the claims of market manipualtion in the gold market:
Reminiscences of a Stock Operator wrote:As I have said a thousand times, no manipulation can put stocks down and keep them down. There is nothing mysterious about this. The reason is plain to everybody who will take the trouble to think about it half a minute. Suppose an operator raided a stock that is, put the price down to a level below its real value what would inevitably happen? Why, the raider would at once be up against the best kind of inside buying. The people who know what a stock is worth will always buy it when it is selling at bargain prices. If the insiders are not able to buy, it will be because general conditions are against their free command of their own resources, and such conditions are not bull conditions. When people speak about raids the inference is that the raids are unjustified; almost criminal. But selling a stock down to a price much below what it is worth is mighty dangerous business. It is well to bear in mind that a raided stock that fails to rally is not getting much inside buying and where there is a raid that is, unjustified short selling there is usually apt to be inside buying; and when there is that, the price does not stay down. I should say that in ninety-nine cases out of a hundred, so-called raids are really legitimate declines, accelerated at times but not primarily caused by the operations of a professional trader, however big a line he may be able to swing.
If Jesse Livermore and Craigr agree then that's good enough for me.  :)
That's a great book. Awesome find with that quote.

Nothing has changed since he wrote those words. If the markets want to move for/against an asset there is simply no person or organization on the planet that can stop it. The markets dwarf it all. Again I say that anyone thinking they have market X under control is fooling themselves just as they think they are fooling everyone else. It will all be under their control, until it isn't. Then they will get their throats cut just like anyone else playing the game.
User avatar
mortalpawn
Full Member
Full Member
Posts: 91
Joined: Tue Aug 13, 2013 11:06 pm

Re: Gold Market Manipulation is a Myth

Post by mortalpawn » Mon Nov 17, 2014 3:34 pm

  Read "Gold wars" - gold is not like other commodities, it is certainly nothing like the stock market in terms of liquidity, and unfortunately is subject to manipulation in the futures market by major banks and even central banks.  The banks would not be subject to prosecution and settlements if it was not going on.

  I agree that it cannot continue forever - witness the large disconnect now between declining prices and sharply increasing physical demand (paper vs physical gap) - which is outstripping both annual gold and silver production currently.  However, both the central banks and large banks have a vested interest in suppressing the price of gold to support their huge foreign exchange derivative positions (which dwarf the gold market in size) and Keynesian economic policies (low interest rates for more government borrowing).  They can do this relatively cheaply in the gold futures market compared to the losses they would sustain in FX, derivatives markets, high interest rates,  or a from loss of confidence event in the general economy.  So they can take some losses in the gold market to cover their larger, more profitable positions elsewhere.

I do believe the recent fall in gold is not due to widespread manipulation, but instead the rising dollar, since commodities are falling across the board.  However, the large rise we're seeing now in the dollar (if it continues) could cause real problems, as it is very bad for the foreign exchange carry trade, and is also deflationary (which the Keynesian central banks hate), and large moves in the dollar are also bad for FX derivatives (which is larger than the stock or bond market).  If the dollar rise continues, we may see serious troubled waters ahead - and gold will likely not be the loser in this case.

More likely the banks will try to contain the dollar price to protect the FX markets - which will bring gold back from its recent lows.
User avatar
mortalpawn
Full Member
Full Member
Posts: 91
Joined: Tue Aug 13, 2013 11:06 pm

Re: Gold Market Manipulation is a Myth

Post by mortalpawn » Thu Nov 20, 2014 1:43 pm

More hard evidence of large banks manipulating commodities -  this time from a US senate report naming JP Morgan, Goldman-Sachs and others:
  http://dealbook.nytimes.com/2014/11/19/ ... es-market/
  http://www.zerohedge.com/news/2014-11-2 ... live-heari
  http://www.bloomberg.com/news/2014-11-1 ... -says.html

Still a myth?
User avatar
Gosso
Executive Member
Executive Member
Posts: 1052
Joined: Fri Jan 06, 2012 8:22 am
Location: Canada

Re: Gold Market Manipulation is a Myth

Post by Gosso » Thu Nov 20, 2014 4:14 pm

mortalpawn wrote: More hard evidence of large banks manipulating commodities -  this time from a US senate report naming JP Morgan, Goldman-Sachs and others:
  http://dealbook.nytimes.com/2014/11/19/ ... es-market/
  http://www.zerohedge.com/news/2014-11-2 ... live-heari
  http://www.bloomberg.com/news/2014-11-1 ... -says.html

Still a myth?
Image

Seems like Goldman lost money on their "manipulation".  Maybe this is a false-flag operation?
User avatar
Gosso
Executive Member
Executive Member
Posts: 1052
Joined: Fri Jan 06, 2012 8:22 am
Location: Canada

Re: Gold Market Manipulation is a Myth

Post by Gosso » Thu Nov 20, 2014 7:56 pm

Here's an article from Bloomberg regarding the aluminum merry-go-round:  http://www.bloombergview.com/articles/2 ... etty-silly

After reading that I was reminded of Hanlon's razor: "Never attribute to malice that which is adequately explained by stupidity."
murphy_p_t
Executive Member
Executive Member
Posts: 1675
Joined: Fri Jul 02, 2010 3:44 pm

Re: Gold Market Manipulation is a Myth

Post by murphy_p_t » Fri Nov 21, 2014 10:14 am

jumping in here...curious your views on the Libor scandal....do you also deny that being a real scandal?
User avatar
Gosso
Executive Member
Executive Member
Posts: 1052
Joined: Fri Jan 06, 2012 8:22 am
Location: Canada

Re: Gold Market Manipulation is a Myth

Post by Gosso » Fri Nov 21, 2014 1:16 pm

murphy_p_t wrote: 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
Executive Member
Executive Member
Posts: 1675
Joined: Fri Jul 02, 2010 3:44 pm

Re: Gold Market Manipulation is a Myth

Post by murphy_p_t » Fri Nov 21, 2014 7:45 pm

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?
User avatar
Gosso
Executive Member
Executive Member
Posts: 1052
Joined: Fri Jan 06, 2012 8:22 am
Location: Canada

Re: Gold Market Manipulation is a Myth

Post by Gosso » Fri Nov 21, 2014 11:03 pm

murphy_p_t wrote: 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.
User avatar
mortalpawn
Full Member
Full Member
Posts: 91
Joined: Tue Aug 13, 2013 11:06 pm

Re: Gold Market Manipulation is a Myth

Post by mortalpawn » Sat Nov 22, 2014 12:17 pm

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
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Gold Market Manipulation is a Myth

Post by Kbg » Sat Nov 22, 2014 12:51 pm

mortalpawn wrote: 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.
User avatar
craigr
Administrator
Administrator
Posts: 2540
Joined: Sun Apr 25, 2010 9:26 pm

Re: Gold Market Manipulation is a Myth

Post by craigr » Mon Nov 24, 2014 1:36 pm

Kbg wrote:
mortalpawn wrote: 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/
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Gold Market Manipulation is a Myth

Post by MachineGhost » Mon Nov 24, 2014 3:31 pm

craigr wrote: 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.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Gold Market Manipulation is a Myth

Post by buddtholomew » Mon Nov 24, 2014 6:31 pm

MachineGhost wrote:
craigr wrote: 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...
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
craigr
Administrator
Administrator
Posts: 2540
Joined: Sun Apr 25, 2010 9:26 pm

Re: Gold Market Manipulation is a Myth

Post by craigr » Wed Nov 26, 2014 10:11 am

MachineGhost wrote:
craigr wrote: 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.
Last edited by craigr on Wed Nov 26, 2014 10:13 am, edited 1 time in total.
barrett
Executive Member
Executive Member
Posts: 1982
Joined: Sat Jan 04, 2014 2:54 pm

Re: Gold Market Manipulation is a Myth

Post by barrett » Wed Nov 26, 2014 10:25 am

craigr wrote: 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.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Gold Market Manipulation is a Myth

Post by MachineGhost » Wed Nov 26, 2014 1:17 pm

barrett wrote: 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.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
AdamA
Executive Member
Executive Member
Posts: 2336
Joined: Sun Jan 23, 2011 8:49 pm

Re: Gold Market Manipulation is a Myth

Post by AdamA » Wed Nov 26, 2014 1:17 pm

barrett wrote:
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/
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
Reub
Executive Member
Executive Member
Posts: 3158
Joined: Fri Jan 21, 2011 5:44 pm

Re: Gold Market Manipulation is a Myth

Post by Reub » Wed Nov 26, 2014 9:51 pm

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
User avatar
craigr
Administrator
Administrator
Posts: 2540
Joined: Sun Apr 25, 2010 9:26 pm

Re: Gold Market Manipulation is a Myth

Post by craigr » Thu Nov 27, 2014 10:03 am

MachineGhost wrote:
barrett wrote: 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.
Post Reply