Gold and Silver: Of Cartels, Algorithms and Artificial Prices

-- Posted Friday, 14 December 2012 | Share this article | Source: GoldSeek.com

Those who follow the day to day developments in the gold and silver markets have typically seen rampant market manipulation by large traders and bullion banks.

Although supposedly against the rules — and even being subjected to an ongoing investigation by the CFTC that now reaches into its fifth year — this market bullying is nevertheless allowed to happen over and over again without effective regulatory intervention.

Some of these big players even employ algorithmic trading systems to move into and out of the market faster than any human can. The transactions initiated by these computerized trading programs happen rapidly and often in huge size.

Algorithmic Trading Contributes to Manipulation

Despite these challenges, both precious metals have been able to rise over the last decade, so the real question is how high the prices of silver and gold would be if the market had not been subjected to recent downside price volatility?

The bullion banks typically need only a minute — as their algorithms quickly trade tens of thousands of Comex futures contracts — in order to induce a dramatic shakeout of weak long positions.

According to Nanex, that is an average of 200 or more contracts traded per second. Furthermore, these sharp moves almost always occur just prior to the trading pit’s open, which is a time frame when the algos tend to dominate the market.

As a very well-informed discussion forum writer contributing under the name James Mc of GATA Chairman Bill Murphy's Lemetropolecafe recently noted on November 28th:

"Unlike last Friday, when it took over 165,000 contracts trading to net a gain of $23.20, gold fell $25.60 between 8:20 and 8:21 AM this morning. Furthermore in just 5 minutes (8:20-8:25AM) a whopping 21,205 contracts traded. No long would ever dream of unloading a position in this manner"

Basically, only a very deep-pocket entity, cartel, or bullion bank aided by an intimate knowledge of where the sell-stops are located could make this happen with the help of algorithmic trading.

This price action effectively negated yet another widely observed technical breakout, which is the result that the manipulators typically accomplish in the market’s managed retreat toward ever higher and higher precious metal prices.

Predictable Trading Patterns Observed

For years, it was GATA speaking out as the lone voice against this practice, but now ZeroHedge has somewhat begrudgingly brought the issue to its fight club by pointing out the increasingly obvious pre-opening trading pattern typically employed by a large “not-for-profit”.

A review of the predictive trading patterns shows these tendencies:

·         On most trading days, gold and silver prices are bombed just before the Comex market opens.

·         Fresh speculative longs get washed out, creating sentiment "at the margin" — which is poor.

·         The price of both metals gets crushed at and around options expiration.

·         If one metal trades higher or looks stronger, it matters little, and they are not allowed to follow each other higher. For example, over the past few weeks, silver has traded relatively strongly, but gold was leaned on despite this strength.

·         Over and over, the HUI or the miners index, works as a tip off indicator. When the mining index is weak, the likelihood of a manipulative raid the following day rises substantially.

This all reflects the real interests working behind the scenes to move gold and silver prices in ways that suit their manipulative purposes. Not the Fiscal Cliff, the FOMC meetings, the Debt Ceiling, nor any other well publicized geopolitical crisis. Precious metals pricing happens in the pits, apparently oblivious to world events or actual physical demand.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit http://www.silver-coin-investor.com

Doing Away With Debt Ceiling Drama

By: Peter Schiff, CEO of Euro Pacific Capital

-- Posted Monday, 3 December 2012 | Share this article | Source: GoldSeek.com

Treasury Secretary Timothy Geithner made news last week by proposing to transfer the Congressional prerogative to raise the debt ceiling to the President. The change would essentially do away with the meaningless debt ceiling debates that have become ritual kabuki in Washington over the past few generations. Most Republicans have dismissed the proposal as a blatant executive power grab that will significantly weaken both the Congress and the minority party. While this is certainly true, Congress will only lose a power that it has never shown the slightest courage to actually use. But in truth, the proposal has the merit of refreshing honesty. By telling U.S. taxpayers, and the world in general, that the U.S. government has no intention of ever balancing its budget or limiting its accumulation of unsustainable debt, then perhaps we can begin to have an honest discussion about our economic future. 

Congress has always decided how much money the U.S. government will spend and how it will tax the citizenry to meet those obligations. Geithner's proposal will change none of that. The debt ceiling debates have been simply to authorize the U.S. Treasury to issue debt to cover the ever widening gap between what Congress spends and what it taxes. As a result, these debates have become nothing more than exercises in feigned outrage. If Congress wants to control the debt, let them do so. If they don't care, just continue on the current path. Dropping the pretense is at least more honest.

The move will also help blunt the ridiculous assertions made by those in favor of lifting the debt ceiling that doing so somehow means that the United States is taking the prudent and moral step of "paying its bills."  In a press conference this week, Obama Administration Press Secretary Jay Carney claimed that by raising the ceiling, U.S. creditors will know that our government will meet its obligations. That is taking Orwellian doublethink to new heights of absurdity.   

It is impossible to "pay" one's bills by borrowing more. Taking out new loans to retire existing debt may replace old creditors with newer, larger, creditors, but it can never be described as a real pay down. It's like paying off your Visa card with a Master Card. Paying one's bills requires that outstanding debt be diminished. In direct opposition to Carney's and Geithner's statements, the only way to force the government to actually pay its bills is to not raise the debt ceiling. But a fictitious debt limit is worse because it allows Congress to pretend that its atrocious budgeting decisions are not to blame. 

Both Congress and the President readily admit that without an increase in the debt ceiling, the government will default on its obligations. This is tantamount to an admission that we lack the capacity or political will to actually repay what we have borrowed. Yet despite this, our creditors continue to loan us more money. As existing treasury bonds mature, we not only borrow the money necessary to redeem them, but we borrow it from the very people cashing them in. So it's not really like paying our Visa bill with our MasterCard, it's like paying our Visa with our Visa.   

The debt ceiling itself is both an ill-conceived compromise and a relic of past governmental integrity. For its first 128 years as a republic, the United States was able to function without a debt ceiling. This was possible for the simple reason that U.S. government had no central bank and could not borrow beyond its ability to repay through taxation. And since the ability to tax is always limited by taxpayers' assets (and their extreme hostility to those who want to take them), legal gimmicks were not needed to prevent Congress from spending too freely. But the creation of the Federal Reserve in 1913 gave the Federal Government a potential means to borrow indefinitely by having the new bank buy its debt. Sensing this danger, the original Federal Reserve Act of 1913 prohibited the Fed from buying or holding government debt.

But just four years later the United States needed a means to raise money quickly to pay for its efforts in the First World War. The government passed an amendment to the charter to allow the Fed to purchase Treasury Bonds. Fearing (correctly) that this would create a mechanism for perpetual debt expansion, conservative lawmakers insisted that the amendment include a "debt ceiling" provision that would cap the amount that the government could borrow.

What these otherwise forward looking politicians somehow failed to grasp was that such a statutory limit was wholly meaningless, as it could be perpetually raised by future legislative action. This is exactly what has happened. The debt ceiling has been raised, with varying degrees of fanfare, every time it has been hit. This renders the law completely meaningless.     

Now of course, under the pretense of fiscal responsibility, the President wants to do the most fiscally irresponsible thing imaginable -- eliminate the ceiling entirely. He hopes that doing so will send a clear and unequivocal message that America will never default on its debts. However, the message may not resonate the way the President hopes. What our creditors may actually hear is that nothing will stand in the way of America's accumulation of more debt. Such a development may be the shock therapy our creditors need to finally cut us off for good. If that occurs, interest rates in the United States could finally rise to more rational levels. A significant increase in the cost of borrowing will create the mother of all fiscal cliffs. It's too bad that Tim Geithner can't see that one coming.