The Wild, Wild West: Dispatches from the lawless frontier of precious metals trading
For five long years, the Commodities Futures Trading Commission (CFTC) has described their investigation of manipulation in the silver markets as “ongoing”. During this investigation, trader Andrew Maguire exchanged a series of emails with personnel at the CFTC informing them that he was witnessing obvious and recognizable manipulation of these markets to such a degree that he could often recognize when a manipulative event was going to take place BEFORE it happened. Maguire then proceeded to demonstrate this for them, emailing the CFTC and informing them that a market smash was going to take place. With the CFTC watching, the manipulative event then occurred precisely as Maguire had warned them and price magically wound up at the exact level that Maguire has said it was going to. He also informed them that manipulators were using the SAXO trading platform to actually signal where they were going to be taking price days in advance, so that the traders who were in on it would know exactly where price was going to be taken. Despite having access to the records of all the trades placed during this event, the CFTC took no action while claiming its investigation was “ongoing”.
Now come the revelations that more than a year ago, two whistleblowers from inside J P Morgan provided the CFTC with detailed and specific information proving that firm’s deliberate manipulative activities in the Silver markets (link). The CFTC sat on this information for more than a year, again noting only that their investigation was “ongoing”. Then, on September 25, 2013, within days of the news of these whistleblowers being made public, the CFTC hurriedly announced an end to the investigation and stated that no charges were being filed.
Directly following on the heels of the “no viable basis to bring an enforcement action” finding, the CFTC Director of Enforcement David Meister announced his resignation from the CFTC (link). Then the Wall Street Journal announced that Agency chief Gary Gensler reportedly also resigned, turning down the Obama Administration’s offer to remain in charge at the CFTC for another five year term. He will be leaving his post within the year (link). All of these events – the CFTC ending a five year investigation, and the resignations of the Director and the Head of Enforcement – came within days of the public revelations regarding the CFTC’s inaction despite the evidence presented by the whistleblowers.
Meanwhile, clearly manipulative market activity is showing up in both short-term charts as our gracious host Turd Ferguson has noted…
…and on longer term charts:
Cheviot Asset Management’s Ned Naylor-Leyland created the chart above, and noted that PM price movements had been very strongly correlated with the price of oil for the last five-plus years… right up until 2013 and especially the period between April and June, where a $200 smash in gold was completely disconnected from any move in the oil markets, or indeed from any fundamentals whatsoever.
The most recent smash-down of the price of gold showed very clearly how deliberately manipulative orders were being placed to overwhelm the bid.
James Mac at LeMetropole Café wrote the following to Bill Murphy, describing the recent action:
What would you do if you had not only just been exonerated by the CFTC, but basically knew there is NO gold or silver manipulation that could run afoul of their "strict" criteria? Relentlessly bomb the hell out of it, that's what you would do. And indeed they are. As has been the constant pattern lately it only takes the cartel 2 or 3 crucial minutes to do the damage. The illiquid pre-Comex open, the first minute of the Comex open, and 10:00 AM are tried and true.
8:00 AM: 120 Dec. contracts traded
8:01 AM: 4,531 Dec. contracts traded
8:30 AM: 594 Dec. contracts traded
8:31 AM: 8,175 Dec. contracts traded
10:00 AM: 284 Dec. contracts traded
10:01 AM: 1,738 Dec. contracts traded
The key to any pre-planned avalanche is to set the dynamite in the perfect location. Just those 3 minutes blasted $27.80 off the POG. Those monstrous 8,175 contracts at 8:31 AM are right up there with any single minute of last April's smash job, an average of 136 per second. Note too the precise timing of the algo bombs- exactly one minute after the hour, or half-hour at 8:01 AM, 8:31 AM, and 10:01 AM.
The manipulative movements evident on the charts and in the order flow were not enough to dissuade the usual apologists/accomplices of the manipulators. After the obvious beat-down of Monday, September 30th, the standard public explanation that it was “hedge-fund selling” was trotted out yet again by several mainstream financial media sources, an explanation repeated so often to explain these movements that it is almost Kubrickian.
I have a friend who is a professional trader, and he routinely places very large orders (100,000 shares plus) for his clients so he knows intimately the mechanics of such trades. He wishes to remain anonymous, but here is what he wrote to me the day after regarding that market action, and the public explanation of hedge fund selling as being the cause:
“Rumor yesterday of fund selling was complete bs (you know this), by people that have no idea how markets work.
Lets say for example, that I want to buy 100,000 shares of a thinly traded BB stock that trades 10,000 shares on average. I route this order through my trade software to my broker and they stick the trade into one of their algorithmic trade bots who executes the order (usually on Volume Weighted Average Price, but there are others). They would NEVER, NEVER place this order “at the market” because they know that they would adversely affect the fill price for that order and move the shares significantly.
So, circling round to yesterday's trade, it's literally impossible for what they describe (the sharp drops in price caused by hedge fund selling) to happen. The trader at the fund would route those shares through their broker, and the broker would execute in a similar fashion to an equity trade that I described above. The only way that this trade could be placed like this would be the trader at the fund would have to deliberately request that the trade be executed at the market. Unless that trader wanted to be fired on the spot, he would never execute the trade in this way.
It would be virtually impossible for the explanation given publicly to be true. We both know who has the power to make orders like this.”
- Pro Trader who wishes to remain anonymous.
CFTC Commissioner Bart Chilton appeared on Bloomberg Television on October 3rd, less than a week after the Silver investigation was formally closed, to make the case that the government shut-down made markets unsafe for the investing public because the CFTC was no longer there to enforce the laws (link). During the interview, Commissioner Chilton noted “If you want the markets safe, secure, efficient, and effective, you have to keep us on the job.”
Sure, Bart. When we think of your regulation of these markets, the words “safe, secure, efficient, and effective” are EXACTLY the adjectives that leap to mind.
Precious metals markets are now the Wild West: a lawless territory where the Judges are bought and paid for, and where brutal and rapacious men are allowed to pillage the populace at will, unchecked by the rule of law. The Sheriff is too cowardly to emerge from his office, let alone do anything to go after the bad guys. He slumps impotently behind his desk, mourning his receding hairline and hoping against hope that nobody brings in more evidence of wrongdoing- not because he would then have to do something (there is no crime so egregious to cause him to bestir himself) but because such revelations make his inaction and cowardice even more publicly humiliating than they already are.
Meanwhile, the townsfolk are realizing they are completely on their own. They stay inside and keep their heads down, trying not to get preyed-on by the gangs of sanctioned looters roaming the territory. The smart ones are quietly stacking all the gold and silver bullets they can lay their hands on, knowing that they and they alone are responsible for their own safety. The rest go about their lives unarmed and uncertain. They would do well to heed the words of William Muny who, when accused of shooting an unarmed man, looked slightly baffled by the charge and replied matter of factly “Well… he should’a armed himself.”