https://jeffersoncompanies.com/gold-newslette...gold-newsletter
As long-time readers know, I've been skeptical that the anyone in the U.S.
government is manipulating the gold market on a daily basis. That skepticism
is rooted in my confidence that the government would screw up any attempts at
active, high-tech manipulation. Just look at their inability to prevent the
Chinese from obtaining confidential personnel files on tens of millions of
Americans -- after having already seen them hack into the system once without
downloading the files.
To quote the great 20th-century philosopher Ringo Starr, "Everything
the government touches turns to crap."
No, a minute-by-minute manipulation of the gold market isn't within the
capabilities of the Washington bureaucracy. But somebody is doing it -- of
that there is no longer any doubt -- and they're doing it by the millisecond.
That's the conclusion of a number of comprehensive analyses by Nanex target="_blank"(www.nanex.net), a company
that offers software and data that tracks quotes and trades on the major U.S.
equity exchanges sequentially. In other words, quote by quote, trade by
trade, by the millisecond. That alone is a great service. But under the
direction of CEO Eric Hunsader, Nanex has also conducted investigations of
many anomalous trading events in the markets and has tracked the rise and
impact of high-frequency trading. Their research site --
http://nanex.net/NxResearch
-- deserves browsing by anyone interested in shenanigans now being
perpetrated on a daily basis by HFTs and their algo trading software.
Of particular interest to us, Nanex has identified and examined some
"flash crashes" that occurred last year and this year in gold. This
Zero Hedge post --
http://www.zerohedge.com/news/2015-06-24/g...-mini-flash-...?
-- describes Nanex's study of the most recent such event, on Tuesday, June
25, when "15 minutes after GDP data was released -- showing Q1 was
indeed as weak as expected and inventories suggesting Q2 will be just as weak
-- someone decided it was an appropriate time to dump over half a billion
dollars of notional gold on the futures market. ..." (Emphasis by
Zero Hedge.)
The Nanex studies can get a bit technical but they are fascinating. For
instance, their examination of a flash crash that occurred on January 6,
2014, showed how gold was forced down over $30 in less than 100 milliseconds.
By breaking the groups of trades into jumps in the exchange sequence numbers,
they were able to identify nine groups where the sum of the trade sizes was
precisely 338 contracts.
At the time of this flash crash, blame was placed on someone's "fat
finger" trade. As Nanex concluded, "This was not the result of a
fat finger, but rather the work of a high-frequency trading algorithm that
paused and (probably) tested the market before continuing. A fat finger would
not have such distinguishing features. What is disturbing about this
algorithm is that it carefully waited so as not to trip the CME's stop logic
and halt the stock. The halt was from the more lenient volatility circuit
breaker after the price declined $30 in less than a second. This algo appears
to have been more concerned about preventing an immediate halt rather than
getting the best prices. Since the value of the trades was close to $500
million, there aren't a lot of suspects."
To me this is ironclad evidence that someone is manipulating the market in
a very sophisticated way, and not necessarily for profit-driven reasons. And
as
Nanex observed, the list of actors who can employ $500 million in what was
essentially a single trade is short.
In this case, the evidence was even convincing enough to prompt the CME
into action, whereupon it recently fined Mirus Futures LLC $200,000 for
failing "to adequately monitor the operation of its trading platform
(Zenfire) and the connectivity of its trading system (Zenfire) with Globex.
This failure resulted in unusually large and atypical trading activity by
several of the firm's customers and caused the mass entry of order messages
by Zenfire, which resulted in a disruptive and rapid price movement in the
February 2014 gold futures market and prompted a Velocity Logic event."
As Zero Hedge notes, Mirus was sold to Ninja Trader about a year ago and
all the people behind the scheme have probably now scattered to different HFT
enclaves.
So, yes, the manipulation of gold and silver is ongoing. But don't count
on any sweeping regulatory action to rein in HFTs or their backers until they
trip up the more important markets that Wall Street is involved in.
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