The Arbitrageur: Gold Manipulation Conspiracy Theory Revisited
On Friday, June 8, King World News had a blog entry based on an interview with an anonymous London Gold Trader. Eric King quotes said London Gold Trader as saying:
One full hour before Bernanke's testimony [yesterday, June 7], the bullion banks started selling. Over the next 4 hours, the bullion banks sold the equivalent of 515 metric tons of paper gold. This was in just 4 hours, and again, the selling started one hour before Bernanke’s testimony.
The selling went on for another 3 hours after the Fed Chairman began to speak, and as I said, over 515 metric tons of paper gold was sold. During this entire takedown, there was zero physical gold available for sale in the market. However, this action did create tremendous supply for the Eastern buyers to lock in the spot price of gold. This will patiently be converted to physical in the coming weeks.
He does not define the term “paper gold” but we can assume he means either London gold Forwards or COMEX gold Futures. This seems to be confirmed by his remark that the anonymous “Eastern buyers” will “patiently convert” their “paper gold” to “physical in the coming weeks.” I assume this means that they will stand for delivery of their contracts.
I also assume that he is not referring to naked, leveraged longs that are forced to liquidate as the price falls, due to margin calls. He explicitly said it was “the bullion banks” doing the selling of these 515 metric tons.
Let’s look at the numbers. 515 metric tons equals 16,557,634.5 troy ounces. Rounding to the nearest 100-ounce COMEX contract, this adds up to 165,576 contracts. 165,576 new contracts were dumped onto the market on June 7, according to the London Gold Trader.
This is a graph of open interest for every active month in gold from June 2012 through April 2013. The graph also shows total open interest. With the exception of a small increase (+2,337 contracts) on June 6, the trend has been that open interest has been decreasing from June 1 (365,323 contracts) through June 7 (350,975, or a net decrease of 14,348).
Even assuming that the bullion banks were selling Forwards, there is arbitrage between Forwards and COMEX Futures. We should see many tens of thousands (or probably close to one hundred thousand) contracts added on June 7. Instead, we see a net decrease of contracts of 10,327 contracts.
In what world does selling new contracts into the market, to push the price down, result in a net decrease in open interest? I don’t know the answer to that. There is a children’s television show that may provide a clue. I like Eric King, and I think he does the world a great service with his interviews on King World News. But the next time anyone needs an anonymous tipster to give out traders’ “secrets”, may I suggest “The Snuffleupagus”?
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9 Responses to “The Arbitrageur: Gold Manipulation Conspiracy Theory Revisited”
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I have no insider information about what did or did not take place, but prices can be manipulated without taking a position on either side. All that’s required is a short term, relative vacuum of real buyers or sellers. In that circumstance, prices can be walked up or down. And if the parties doing the manipulating wished to cover some short positions, they could probably do that by buying from panicked, over leveraged longs at the end of the day. This may not be what Eric King was describing, but this sort of thing does happen in markets every day, and the metals markets are fair game.
I would agree that short term manipulation is fairly common – this can e.g. be seen on occasion of options expiration days, when securities are usually pushed to the ‘max pain’ price.
But a concerted, large scale surreptitious manipulation involving countless players in cahoots with the government seems rather unlikely to me, mainly due to the fact that the govt. is too incompetent to pull something like that off without getting caught.
Uhhhh….. Pater ? I’m sure you’ve heard of “The Other Golden Rule”; the one that goes “Whomever HAS the gold, MAKES the rules.”. Well, when you’ve hoodwinked the rest of the world – for the time being, anyway – into pricing its two most valuable non-food commodities – gold and oil – in YOUR currency, you can get away with a LOT without having to appear terribly “competent”. It also helps to have The World’s Biggest Gun Barrel, also for the time being, anyway.
Don’t be too quick to fall into the “government is too incompetent to (do whatever)” trap; it’s exactly the illusion they want to create.
Or, as B’rer Rabbit so famously remarked, “Oh, PLEASE, B’rer Fox ! Please don’t fling me in ‘dat briar patch!”
The gold manipulation stories do tend to get carried away and all the nail biting explosive things that are to imminently happen from it-seem to fizzle away and be forgotten about-
There’s always manipulation in the gold market and the stock market and bond market-always has been and likely always will be-
I read a book by Ted Warren who was a trader in the 30′s and one of the pioneers of TA who pointed out on his charts back then-the manipulation of company stocks and commodity markets-
All i know is-if they’re trying to suppress the price of gold-they’ve been losing ground for 11 years running-
What if they have been the major longs on the bottom?
mann–
I’m not sure what your question means-
Manipulation can be either long or short-
Here’s a good example of gold manipulation in broad daylight-
So no one can say that gold price suppression hasn’t been a big part of government/central bank policy-
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Alan Greenspan-
Central banks stand ready to lease gold in increasing quantities should the price rise
Testimony Before the Committee on Banking and Financial Services, U.S. House of Representatives July 24, 1998 [1]
http://en.wikiquote.org/wiki/Alan_Greenspan
Good work Keith. The numbers don’t addFor one thing, one of the great hedges for the banks would be to enact policies that would force the liquidation of gold positions. As a group, I believe short term, they can push the price of gold significantly in either direction. There is a shortage of cash that can arise at any time.. Maybe i am wrong. Gold is a hell of a big market.
People years have been claiming they have been shorting silver and holding the price down. What is the difference between a naked short and a naked long? Just as a real short can hold its position open and force the long to pay a premium in liqidation, a long can also force delivery. That story, coupled with the nonsense there was only something like 1 billion ounces on earth never held water with me. Being silver had traded in the under $10 range for most of this time, the mere amount of $10 billion or less could have controlled all the silver on earth. Note the amount of money Amaranth lost running a corner in the Natural gas market. When you consider the inventories needed in the industrial applications of silver and the various hoards around the world, the available silver and the amount of money to buy it would have been much less and such a short corner would have collapsed in a matter of months, not years. Being the longs were speculating as well, I don’t see where they would have room to cry about anything.
Maybe i am wrong. Gold is a hell of a big market.
***********
Not to comment on the manipulation aspect-but-
The gold market is not big-
http://bit.ly/LrPyYK
http://bit.ly/KrKxmH
This is how London Trader recruits new clients for trading advice along with hooking up with the Turd and calling it an Army or something like that. Its just marketing.