I am simply amazed at how much email I have been getting asking my opinion regarding the latest “manipulation” cases. And, many of those are asking me if I am finally convinced that the metals market was manipulated to drop from 2011 to 2015.
Well, let’s try to walk through the issues together.
Let’s start this article by identifying that about which we are speaking. You see, the great majority of those who read these manipulation cases believe that the manipulation addressed in these cases is what caused the metals market to drop from 2011 to 2015, and what caused a 70% cut in the price of silver. So, if you have clicked on this article to read me changing my position regarding that type of “manipulation,” you will be quite disappointed. And, if you actually believe in that perspective, I suggest you read on with an open mind, as you will see why you are 100% wrong in that belief.
Two years ago, GoldEagle asked me to write an article proving that manipulation in the metals market is not as powerful as most try to claim. And, that article caused quite a furor amongst the gold bugs and manipulation theorists. You can feel free to read the entire article here:
Within the article, I address the manipulation cases quite directly:
“The second method through which they attempt to prove wholesale manipulation is to point to evidence of small price manipulations and suggest that these ‘paper cuts’ have caused the market to bleed to death. None of their supposed ‘proof’ provides even a shred of clear evidence that the gold market was manipulated to drop over 40% and that the silver market was manipulated to drop over 70%.
“The latest supporting ‘evidence’ to which the manipulation theorists proudly hang their hat is the recent news about Deutsche Bank’s admission of ‘manipulation.’ Everyone now assumes they have found the smoking gun which ’caused’ silver to drop by over 70%, which proves they were not wrong to be bullish all the way down. Of course, they can now ‘prove’ that everyone was cheated out of their money due to this ‘manipulated’ decline of 70%. Right?
“Wrong. This was not the first case regarding market manipulation, nor will it likely be the last. But, what many do not point out is that the manipulation dealt with in these cases is not the ‘manipulation’ to which all the analysts have been pointing to explain why silver lost 70% of its value when they did not see it coming.
“You see, the manipulation dealt with in these cases were attempts by these banks to move the market by a very small percentage in order to make a quick buck off a very small move which they attempted to control, often during low volume periods of market action. This is what is claimed within the actual legal complaints filed against these banks, which generally provide that the banks ‘manipulated the bid-ask spreads of silver market instruments throughout the trading day in order to enhance their profits at the expense of the class.’
“Moreover, and quite importantly, this type of small degree ‘manipulation’ occurred whether the market was going up or going down, and such manipulation was not geared towards only dropping the market lower, as the manipulation theorists want you to believe. Please read that again. It was not claimed in these lawsuits that the manipulation had the purpose of taking the market down as you have been led to believe.
“These lawsuits do not support the commonly held proposition that the market was ‘manipulated’ to drop 70%, as in the case of silver. To claim that these small degree ‘manipulations’ caused the market to drop 70% is complete unsupportable nonsense, and is only used as a scapegoat by those who have been very wrong about the market, but refuse to take responsibility for their decisions.
“While many will undoubtedly misread my conclusions as my claiming that there is no manipulation in the market, and post comments about how wrong I am about claiming there is no manipulation at all in the market, I suggest you actually read what I have said again. And, if you still cannot come to the correct conclusions, allow me to lead you in the right direction.
“I do recognize that there is ‘manipulation’ in the market by larger market participants. But, as the cases on the matter clearly point out, these ‘manipulations’ are of a very small degree of market movement, or, “paper cuts,” as I have referred to them above. Moreover, as the cases also present, these small degree manipulations occur in both directions. Please read that again: THESE SUPPOSED SMALL DEGREE MANIPULATIONS OCCURRED IN BOTH DIRECTIONS.
“Therefore, my proposition is that such ‘manipulation’ did not cause gold to drop by 40% and silver to drop by 70%. And, I will reiterate my proposition that proof of a ‘paper cut’ is not what caused the market to bleed to death. Rather, we call that a market correction and not a market manipulation. Accept it.”
So, now there are many who believe that the recent indictments “can officially close the case on the question of gold and silver price manipulation.” Yet, I am sorry to inform you that are you are very wrong to the extent you believe it caused the market correction from 2011-2015.
Folks, there are two different issues in the market and you MUST understand the difference between the two issues or else you will be caught up wearing a tin foil hat while believing that someone manipulated you out of your money during the market correction from 2011 to 2015.
The issue dealt with in all these cases is called “spoofing.” Allow me to post what the current indictments which were handed down this week noted to this effect:
“The indictment alleges that the defendants engaged in widespread spoofing, market manipulation and fraud while working on the precious metals desk at Bank A through the placement of orders they intended to cancel before execution (Deceptive Orders) in an effort to create liquidity and drive prices toward orders they wanted to execute on the opposite side of the market. In thousands of sequences, the defendants and their co-conspirators allegedly placed Deceptive Orders for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc. By placing Deceptive Orders, the defendants and their co-conspirators allegedly intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets, and to deceive other participants in those markets into believing something untrue, namely that the visible order book accurately reflected market-based forces of supply and demand. This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling precious metals futures contracts at quantities, prices and times that they otherwise likely would not have traded, the indictment alleges.”
So, again, all these cases deal with the same thing – “spoofing.” Spoofing relates to small price “manipulations” based upon the bid/ask, but in such large sums and frequency that it made the perpetrators quite large sums of money. Moreover, they engaged in this type of manipulation in BOTH directions. As I hope you can see, this “manipulation” does not change the direction of the market nor is it intended to do so. This is not the type of “manipulation” that the manipulation theorists are trying to get you to believe caused the metals market correction from 2011 to 2015. To suggest otherwise is simply untruthful.
Now, let’s take a step back and try to understand why these manipulation theorists are so intent and desperate in having you believe that the market was manipulated to drop from 2011 to 2015.
I would challenge you to find even one of them who foresaw the market topping out in a major way in 2011. In fact, each and every one of them were uber-bullish at the market highs in 2011, with all of them pounding the table with certainty about how gold will imminently surpass the legendary $2,000 mark.
So, do you think they really want to look as bad as they did if there was no “reason” why the market dropped precipitously until 2015 instead of imminently exceeding $2,000 as they were touting?
Well, of course, it was “manipulated” to do so. And, when they can point to cases which deal with “manipulation” in the market, they then try to sell you on the fact that the paper cuts caused by the perpetrators in these cases actually caused the market to bleed to death. Despite this being a ridiculous proposition, many have been fooled into believing it.
Anyone who understands the legal issues being dealt with in these cases knows very well this is not something to which one can reasonably point as a proximate cause for the silver market to drop by 70%. Anyone suggesting otherwise is simply displaying their ignorance or is attempting to con you.
So, I ask you: What is more manipulated – the metals market . . . or investors who are led to believe that manipulation caused the price to drop from 2011 to 2015? If you are being honest, then you already know the answer.
Lastly, I want to re-state that I think the activity dealt with in these cases is still illegal and the perpetrators should be punished if they are convicted of that which they are being accused. And, I am quite certain that there are traders who were wronged by their illegal actions.
But, if you are a buy and hold investor in the metals market, I can assure you that these cases have no bearing on your investment holdings. So, you would be best to summarily ignore these cases.
Moreover, it would also be best for you to ignore those who are trying to convince you that these “manipulators” caused the market drop between 2011-2015. They simply need a scapegoat for their lack of ability to foresee that correction coming. The real question is why you continue to read them or trust them?