Armstrong Economics Blog/Gold Re-Posted Mar 13, 2023 by Martin Armstrong
COMMENT: Marty; Two former Merrill Lynch traders were each sentenced to a year and a day in prison Thursday for manipulating the precious metals markets, the US Department of Justice announced. Of course, —- —–, which is forever bullish metals, claims they moved the metals in the “direction they wanted from 2008 to 2014.” It just seems that people claim it is always manipulation when they have been wrong. They only look at gold in dollars as you have said it’s a global market. They would have to manipulate all the currencies as well.
This latest affair of so-called manipulating trades during the day proves what you have been saying. They have always been gunning for stops during the day, but they cannot manipulate the trend between a bull or bear market. Do you think people will ever understand this is a global economy?
ANSWER: I know. Unless people have actually been a trader, they will never understand the market. They will blame people like this to pretend they were not wrong. The problem is that this nonsense of manipulation is driving a stake through the heart of the market. Trading is like a poker game. Do you reveal your hand before everyone starts to bet? Sometimes you bluff, but the point is if you are bluffing, you have to stand behind your bet.
The mere fact that someone is blaming this type of “manipulation” for being the reason they have been wrong demonstrates that they know nothing about investing no less trading. The DOJ is now big on calling placing large “spoof” orders as manipulation. That is absurd and it is no more than bluffing in a poker game. This is the way all the markets have always functioned. Everyone would know where the stops were anyway. Sometimes they traded ahead of them using the stops as your risk point to exit the trade, and other times they would sell or buy to push the market through the stops when it was obvious that was even possible.
When I was trading in precious metals back in the ’90s, the biggest “local” dealer on the floor was Oni Morrison. He would do “spoof” orders all the time which I called “flash” bids or offers. The difference was he was good for it if hit. I was long one time in gold and I wanted out for the computer projected a crash was coming. But if you offer a thousand lots and the market was heading lower, everyone will read that and jump in front of you. That is how the Hunts went bankrupt. The Hunts did not know how to trade. Just as in poker, you cannot show your hand and expect to trade.
Oni would do “flash” bids or offers. I told my broker not to offer anything. I told him just to watch Oni and as soon as he would do a 1,000 flash to buy – say done! Sure enough, Oni was trying to push the market back up and he did one of his famous flash bids for 1,000 lots. My broker, Emerald Trading, instantly said “DONE!” Oni did it again, and they said “DONE!” Again he did a fash for 1,000 and again they said “DONE!” That was it. Oni was full and everyone began selling as the metals tumbled.
That is the way you have to trade SIZE. This is the very foundation of trading all markets for everything is just a poker game. To now call a “spoof” trade manipulation is just wrong. It is totally different when you do not have the backing. Now that would be a fraud and trying to manipulate the market for that moment – not changing the overall trend. But when you have the backing to honor your “spoof” it is just a “flash” bid or offer that you must stand behind when hit. That is just trading.
It is total BS to pretend that these guys manipulated the entire market. That is just absurd. Not even the central bank can manipulate the economy. You cannot “manipulate” a market against the trend for everything is connected. That caused the Panic of 1893 when the Silver Democrats overpriced silver. The Europeans hit the arbitrage and dumped silver in the US and took the gold back to Europe. That led J.P. Morgan to have to arrange a $100 million gold loan to bail out the treasury. That alone proved that you CANNOT manipulate ANY market against its trend for it will be arbitraged internationally – plain & simple.
Gold trading around the world in different exchanges is arbitraged. You cannot have gold $20 high in one market v another. It will be arbitraged instantly. Those who claim this as “proof” that the metals have been manipulated so that is why they have not rallied and why they have been wrong are fools who have been separated from the money. They will never understand the markets no less be able to see beyond the end of their nose. It will be instantly arbitraged.
The collapse of the Soloman Brothers was precisely that. They were putting in bids at the Treasury Auction using other people’s names to goose the market. They got caught and the firm was taken down. I know PhiBro from the ’70s and ’80s. They took over Solomon Brothers and brought that style of trading from the commodity pits to Wall Street.
This excuse by goldbugs that the metals were actually “manipulated” in their long-term trend, shows their hopeless ignorance of the markets and how they even trade. There is NOBODY who could possibly do such a thing for everything connected. As soon as the dollar would rise, the metals in terms of foreign currency would be so overvalued they would all sell and they will end up broke the same as the Silver Democrats bankrupted the country by overvaluing silver.
Trading internationally, with clients in all currencies, we have to look at each market in terms of their currency for that will determine if they made a profit or loss. Anyone who claims the metals have been manipulated and that is why they have not rallied is obviously oblivious to the world around them.
Gold does NOT rise with inflation – that is the sales pitch of a used car salesman. Gold rises in times of UNCERTAINTY with respect to the government. In times of war, it rises because it is NEUTRAL and you are not betting on who will win.
All we hear is that the debt is rising and therefore gold will explode. Once again, they offer no proof of their sophistry because there is no such proof. Gold declined for 19 years while the national debt climbed endlessly.
Then there is the myth about interest rates and gold that higher rates are bearish and lower rates are bullish. Well, interest rates peaked in 1981 and declined in 1994 before they began to rise marginally into 1995. Yet then contrast that myth with the performance of the dollar. There the greenback rose to a record high in 1985 but then declined for 10 years into 1995 all the while gold declined into 1999.
OK, so now let’s look at gold between 1980 and 200 in terms of Swiss francs and British pounds. We can instantly see that gold bottomed in 1985 in terms of the Swiss franc. In terms of British pounds, gold did not bottom until 1999.
People come up with theories all the time. However, they always try to reduce everything to a single cause and effect. They are doing that with climate change. They are telling the world it is CO2 that has changed the climate without ever addressing anything else.
The world we live in is not only complex, but it is also so dynamic it appears that no human can correctly forecast the future with an “I think” scenario. Sometimes they will be right, and others they will be wrong. Typically, they fail because they try to reduce the world to a single cause and effect.