April 13, 2013 – “They” must be getting desperate to resort to such flagrant manipulation of the markets, the way they did yesterday.
By The Cerebral Aesthetic Vagabond
“They” must be getting desperate to resort to such flagrant manipulation of the markets, the way they did yesterday.
For years gold and silver have been routinely pummeled to protect the U.S. Dollar’s image, but never more so than Friday, April 12, when, according to one expert, 500 tons of gold were sold in the futures market in a single day. To put that in perspective, just a few years ago the major governments of the world were bound by agreement to limit their collective gold sales to 500 tons per year! So selling 500 tons in a single day is a truly staggering quantity, but consistent with the observed price action. Needless to say, a sale of that magnitude can have no legitimate trading purpose; the objective of such a massive sale was clearly to smash the price and frighten away precious metals buyers.
One has to wonder just who are the buyers of these futures contracts. After all, anyone who’s seriously looking to purchase physical metal is not going to purchase it using these contracts. Such contracts might be useful in other commodity markets that are still legitimate, such as that for corn, but the futures market for precious metals has evolved into an instrument that exists solely for the purpose of manipulating precious metals prices. Anyone in the market for hundreds of tons of physical metal is probably shrewd enough to be aware of the corrupt nature the futures market. Moreover, I seriously doubt that the sellers of these futures contracts could deliver the metal when the contracts expire. Finally, why would someone purchase 500 tons of gold in the futures market, knowing that a sale of that magnitude would crash the price? Why would anyone purchase an asset that they could anticipate was going to decline in price?
Given the anonymous nature of these trades and the utter lack of any regulatory oversight, what’s to stop a single entity from being both the seller and buyer of these futures contracts, especially if shell companies are used to further conceal the identities of the parties? In such a case, the only thing that actually has to be transferred is a small fee to the operator of the exchange, “hush money,” since the exchange operators are every bit as culpable as the principals in manipulating these markets. Otherwise, no physical metal or cash needs to be exchanged; only a simple accounting entry has to be made in the books of the seller and buyer. And when the contract expires, the seller can offer to settle in cash, which the buyer would accept (since they’re the same party) and both parties would simply make another accounting entry canceling out the transaction. Thus, it can appear that metal has been sold, when in fact nothing has been sold or delivered. To add insult to injury, the parties involved might even be able to obtain tax deductions for any expenses or “losses” incurred in the deal!
Friday’s sale was obviously intended to scare people out of precious metals, but who exactly is the target? The only people they are scaring out of the market are those holding paper contracts, especially those who purchased with leverage. People holding physical metal that’s fully paid for, and who are buying precious metals out of conviction and based on the financial fundamentals may be annoyed by this brutal attack on the price, but they are unlikely to be “scared” out of the market. If anything, seeing the price of their precious metal drop will either cause them to resist selling it until the price rebounds, or to purchase more at discounted prices. At best, this recent volatility will scare potential newcomers away from the physical market. Although probably fewer than one person in ten – here in America – has any interest in precious metals to begin with, the few that do may look at the recent price action and conclude that precious metals are too risky, that it’s “safer” to stick with U.S. Dollars and pray that their bank deposits aren’t inflated away or “bailed-in” (i.e. confiscated).
A week ago I had occasion to glance at a chart of the bitcoin price and instantly recognized the vertical, late stage exponential curve and concluded that a crash was imminent; days later it crashed, which came as no surprise. (Donning my engineering cap, the price action following the initial crash exhibited an oscillatory behavior that looked remarkably similar to that of an improperly tuned feedback control loop, which is a reasonable analogy since bitcoin is a purely virtual, computer-based currency. Judging from the oscillatory price behavior I would suggest that bitcoin needs some sort of “tuning” to dampen its tendency to oscillate in response to perturbations, but I digress.)
While the bursting of the bitcoin bubble was totally anticipated, the more interesting question is, who created the bubble? Traditional bubbles peak once every delivery boy begins talking about the market, which certainly proved to be the case with the U.S. stock market bubble that popped in the year 2000. Thirteen years later I vividly recall my grocery delivery boy gushing about his latest stock purchase; the market crashed just weeks later. That same frothy popular participation and ebullience was also evident in the U.S. housing bubble that popped in 2006. By contrast, widespread popular participation in the bitcoin market was absent prior to its recent exponential rise. I’ll bet not one person in a hundred had even heard of bitcoin prior to its crash – today it might be one person in ten, the nine new ones all harboring a negative image of bitcoin, thanks to the crash – so who was frenetically buying all those bitcoins just prior to the crash?
Some speculated bitcoin was being manipulated up by governments, so that the governments could crash and discredit it and perhaps even use the crash to regulate it “for the protection of the participants.” Such speculation made sense when I read it and makes even more sense in light of the subsequent takedown of precious metals, the temporal proximity of the pair of events suggesting a pattern.
The total market capitalization of bitcoin peaked at around $3 billion, which to an entity such as the U.S. Government is mere pocket change; heck, the USG “misplaces” that much each and every day. So it could easily afford to purchase bitcoins in an effort to run up the price, pull the plug and suffer a paltry loss. Just a few months ago a paper was presented at the Bank for International Settlements – often called the central bank of central banks – that mentioned bitcoin by name and addressed the concept of decentralized, virtual currencies as a grave threat to central banking. Lo and behold, a few months later bitcoin suffers a savage crash which harms its image. Ironically, one of bitcoin’s best attributes, its anonymity, permits anybody, particularly a deep-pocketed government to covertly attack the currency in the manner described above.
It seems an unlikely coincidence that precious metals crashed two days after bitcoin crashed. Recently there had been discussions on the internet about precious metals and bitcoins being competitors for money seeking to escape fiat currencies. In these discussions it was generally agreed that bitcoins were taking some money away from precious metals, especially silver. Therefore, the nearly simultaneous crash of bitcoin and precious metals seems improbable. According to the foregoing conclusions, the bitcoin crash ought to have boosted precious metals prices, but precious metals prices crashed right after bitcoin prices crashed.
In a word: manipulation. Every single market – and I mean every single one – is being manipulated by the powers that be. It’s as if they have adopted market manipulation as their sole mandate. Their strategy is simple: boost the dollar, boost bond prices, boost the stock market (which magically remains at a record high in spite of the crashes of precious metals and bitcoin, and in spite of the swelling torrent of dire economic news), boost the housing market, crush all non-fiat currency alternatives to the dollar, especially precious metals and emerging new vehicles, such as bitcoin and its brethren (devcoin, litecoin, namecoin, ppcoin, terracoin, to name a few); and to further conceal the debasement of the dollar, cajole the central banks that manage the other major currencies to debase their currencies as well, so that they are all debased in lockstep.
This strategy has been in place for years, but what’s noteworthy about Friday’s takedown of the precious metals market is the magnitude. One can only conclude that “they” are getting desperate or that something “big” is on the near horizon. Without a doubt, their long standing strategy of market manipulation and perception management has so far been successful in directing the flow of money, but it has done absolutely nothing to fix the underlying problems plaguing the western economies, and by triggering all sorts of malinvestment this approach has arguably made the underlying problems worse, even though they still remain largely concealed from the average, willfully blind person. As many have noted, all these shenanigans, tricks and market manipulations will eventually lead to much more severe consequences than if we were to forthrightly, honestly, fairly and maturely address the fundamental problems.
I’ve often wondered what drives our “leaders” to pursue such obviously misguided, no, counterproductive strategies. Is it hubris, that they think they can avoid the mistakes of their predecessors or escape the laws of physics? Is it avarice, that they seek to steal everything for themselves, regardless of the broader consequences? Is it sheer malevolence, that they are driven by a deep seated hatred of life and a need to destroy it?
Regardless of the motivations of the powers that be, the east continues to build its industrial base and accumulate real assets (which they can purchase at a discount, thanks to the western manipulation of the markets), while the west steadfastly pursues its suicidal course of dismantling its industrial base, dis-employing its populace and playing financial games. The east must be laughing uncontrollably behind closed doors.
Even the mainstream media is beginning to acknowledge that free markets no longer exist and that the prices of everything are “rigged.” In this April 25 article in Rolling Stone magazine, titled Everything Is Rigged: The Biggest Price-Fixing Scandal Ever, Matt Taibbi writes:
If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above.
Yep, I’ve been saying such things for years. And it matters not whether the price fixing is done by corporations or governments because today we live under a fascist tyranny that spans the globe, blurring the distinction between governments and corporations. The merger of government and corporation represents a nearly perfect symbiosis, for each gets what it craves – power for the government, money for the corporation – while the average citizen is the one who gets screwed from both ends.
The latest video (3:35 minute mark) from Max Keiser contained a very intriguing explanation of “wash trades,” in which a single entity is both the buyer and seller, and whose sole motivation is to manipulate a price. This explanation of “wash trades” puts a little meat on the bones of my question above, which was, “what’s to stop a single entity from being both the seller and buyer of these futures contracts.” It appears that not only nothing exists to prevent such a thing, but that it apparently occurs!