Like many others who watch the markets I have wondered what might be prompting this obvious bear raid on the paper precious metals market over past four weeks. It could be explained by any number of economic developments including the decline of the Euro, but that does not really explain the downward market action which has been sporadic and not associated with news, moreso than fundamental. One has to be a bit naive or disingenuous to ignore the blatant bombing of the market with large numbers of contracts for sale during thinly traded markets. This is the not the sort of trading that a profit seeking trader would do except under the duress of a margin call. I admit this would be less likely if one has a high level of confidence in the CFTC. They have not done much to inspire such confidence in the public this year, particularly in light of their mishandling of the silver market investigation and of course MF Global. Anyone who watches the tape, rather than waving their hands from the 50,000 feet level, can see this clearly. From speaking with other traders, and based on my own thinking, I believe that what we are seeing is primarily a type of end of year window dressing supplemented by a broad desire to maintain 'orderly' prices by the central banks. At the end of year an institution will mark positions to market. Granted, any number of institutions will have an off calendar fiscal year ending for example in October. But many others observe the conventional calendar year ending in December as their fiscal year, among them JP Morgan and HSBC for example.
It is a widely remarked phenomenon that trading firms run up prices into key events to make their results look better if the market conditions permit it. And the trading desks run prices lower on some assets into key events such as option expirations. But what about firms that have very large short positions including naked short positions with leverage? Would they have an incentive to push prices lower into key events of mark to market? The answer is yes, particularly if markets are thin and sentiment has been battered by repeated bear raids and commentary from their friends in the financial press. They also often spread the word, one way or another, amongst big traders and friends at funds that tend to follow price momentum to add more 'punch' to their efforts. And of course it does not hurt if a major source of bullish trading amongst small speculators has been taken down into bankruptcy. Is this why we are seeing this now? Few can know for sure, but if we see a sharp rally in January and resumption of the bull trend the answer is more probably 'yes.' And if so, this is just another hidden price that is being paid by a nation that cannot bring itself to be free of a financial oligarchy and their corrupting influences. Be careful of trying to get in front of this while the downtrend is intact. Short term greed is swimming in the water with the sharks. And they own the lifeguards. This downtrend is a good test of your ability to tolerate risk and execute a properly hedged trading strategy. Better for most not to trade at all but to take a long term horizon and follow some investment plan, and do not change it unless something fundamental changes first.
