HFT-Driven "Markets" Continue To Distort Prices

49
Wed, May 6, 2015 - 11:03am

As The POSX collapses another point today, it's easy to ask why gold isn't racing higher. The answer, of course, lies with the algos and their seemingly endless pairing of gold with the yen.

This is just a perfect example of how utterly FUBAR all of these "markets" are. Once again, conventional wisdom is tossed out the window due to the total market control of the HFT algo computers. Your example today continues to be the relationship between the dollar index (POSX) and gold.

Again, conventional wisdom holds that as the dollar rises, gold falls and vice versa. Do a Google search of this and you'll find thousands of articles detailing this inverse relationship. So why, then, has the POSX fallen from 100 to 94 (down over a point today!) and yet gold has barely budged?

Always remember that the POSX is about 60% euro. This is extremely important, especially today, as the fall in the dollar is primarily due to a rise in the euro. Just today, the POSX is down 1.22% but the EURUSD is up 1.54%.

But the infernal HFT algos aren't set to sell$/buy gold, instead, as we've documented countless times these past few months, they're set vs the yen! Therefore, a falling dollar only boosts gold IF the dollar is falling due to a rising yen. Having the dollar fall vs the euro accomplishes next to nothing. We saw this last week and we're seeing this again today.

Here's the Pig, falling fast and begging for support. It needs to find it, too, somewhere north of 93.25:

But while the POSX sinks like a stone, gold is barely budging. Today it's actually down at 89. WHY?? Again...it's all about that yen and the HFTs that key off of it. For while The Pig is crashing and the euro is soaring, the yen is hardly moving at all. And when the yen hardly moves, gold hardly moves. Here, see for yourself (yen in candles, gold in bars):

On the other hand, crude oil is rallying.

Why?? Has the US eased the pressure on Russia? Have MENA geo-political concerns flared up? Have oversupply issues been resolved? Has global demand suddenly surged? I don't know. Maybe the answer to all of those questions is a resounding yes. Or...maybe...as we've been stating here for months...crude oil is only moving due to changes in the euro. Once again, it's all about the damned HFTs that control everything through paper derivative trading. Euro down, crude down. Euro up, crude up. It's become no more complicated than that.

And so, repeating...Here's the Good News and Bad News out of this...

GOOD NEWS: All of the charlatan, permabear paperbugs out there that claim "gold is going to 0" or even lower don't stand a snowball's chance of being correct as long as the yen stays above 0.82 JPYUSD or, conversely, below 122 USDJPY. Only if the yen depreciates another 25% vs the dollar will the HFTs slam gold that low.

BAD NEWS: As long as the current system perpetuates, paper gold isn't going higher, either, until the yen rallies against the dollar. All of the talk about China and physical demand and London supply and SDRs and cost of production isn't going to matter much as long as the JPYUSD stays below 0.86. For now, the HFT algo paper trade dominates and trumps everything else.

EVENTUALLY, this will all implode in spectacular fashion, just as every other instance of uneconomic pricing has in the past. Until then, just recognize it for what it is and act/prepare accordingly.

TF

www.tfmetalsreport.com/freetrial

About the Author

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turd [at] tfmetalsreport [dot] com ()

  49 Comments

tyberious
May 6, 2015 - 11:04am

First

What a mess!

CPE
May 6, 2015 - 11:05am

Feed

the

Machines!

May 6, 2015 - 11:07am

Public post

I made this a public post today in the hope of driving as many as possible to the site, hoping they'll stick around and learn some Russian history from Professor Cohen.

May 6, 2015 - 11:08am

these tweets from Ronan are instructive

mike97
May 6, 2015 - 11:18am

Coveted Thurd again

BIS dumping again? Yen is up 0.34% against USD, so we should start to see a reversal soon.

TF Metals fan
May 6, 2015 - 11:31am

Leaky brain

Yes Turd you explained this too often. And yes the question did come again in my mind. So thanks for pointing it out again and make this a public post. Thanks!

perdman
May 6, 2015 - 11:38am

Well done professor Turd..

Sending the link to friends who always spew the dollar down gold up mantra

May 6, 2015 - 11:49am

A secondary HFT pairing that must also be watched

At least this one has some level of economic rationale behind it...

Lower bond prices means higher yield.

Higher yield on paper means the ZERO yield of shiny gold is less attractive.

You must also be aware of the short bonds/short gold...conversely...buy bonds/buy gold HFT algo pairing. Though not nearly as dominant toward price as yen--gold, the current selloff in bonds is also impacting the paper price of gold.

Angry Chef
May 6, 2015 - 11:56am

Yikes ! Fat finger I Guess

https://www.zerohedge.com/news/2015-05-06/swiss-stock-market-collapses-instantaneously-5th-anniversary-flash-crash

Now imagine you're a hedge fund, insurance company, pension fund and you've got a derivative book tied to this ? Oh the tangled web we weave....

May 6, 2015 - 12:01pm

Dr. Paul definitely a Turdite

Not a big fan of Stansberry but this video is certainly helpful and worthy of your time.

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