Archive for April, 2013

Was Gold Shorted?

23 April 2013
I had recommended Chris Martenson’s crash course long ago for anyone interested in knowing how paper money, or fiat money as it is more popularly called by commentators in USA, when freely created could hyper ventilate debt to unmanageable proportions. It has now expanded to 20 installments, but is worth one’s time-investment. Martenson has been a big believer in investing in precious metals, especially gold, as a hedge against the collapse of paper money either through hyper inflation or through downward spiral of economic contraction. Since central banks [or in general fractional reserve banking] and governments cannot create gold or precious metals out of thin air, he puts his trust squarely in gold [among other things such as self sufficiency for long term survival] as a store of value and medium of exchange. His trust is vouchsafed by the allure of gold for rest of the humanity as was borne out when recently people trooped to bullion markets to stand in queues to buy gold at “crashed prices”.
Someone had wryly commented that what use would be gold when society turns dysfunctional? Possessing gold makes sense when orderly exchange of goods or services is possible. When economic breakdown occurs one may need guns to defend one’s gold; or if one doesn’t have gold, then to get what one wants through the barrel of a gun.
That apart, when some 10 days ago gold prices crashed, and kept coming down in next few days, everyone was flummoxed about what was going on. For a gold-hawk like Martenson, the news must have zapped his sleep. That is exactly what happened, ^^^Now here are a few patterns that routinely erupted throughout the drops during Sunday night (yes, I was up very late watching it all)… These are just a few of the dozens of examples I captured over a single hour of trading before I lost interest in capturing any more^^^. He was glued to his terminal monitoring the movements in the price of  gold in the late night after market close on New York Commodities futures markets. This is what he saw.
The arrows he has drawn show the difference in trade frequencies when humans are transacting orders as compared to when HFT or High Frequency Trading takes over. Market makers have invested in sophisticated algorithms that analyse market trends the world over very quickly and carry out high frequency trades to make money by being ahead of the curve. Here are two sample comments he has given from analysts:

“There is no other way to put gold’s recent sell-off: nasty,” said Joni Teves, precious metals strategist at UBS in London, adding that gold would have to work to “rebuild trust” among investors.
Tom Kendall, precious metals analyst at Credit Suisse said “Once again gold investors are being reminded that the metal is not a very effective hedge against broad-based risk-off moves in the commodity markets.”^^^

He points that both the analysts work for two of the five largest Bullion banks/ traders in the world. That is both are interested parties to the price of gold. Nay, these big five are the ones who decide any large scale movement in the prices of bullion and profit from it. They are the market makers or market breakers. Did they massively short gold? Martenson thinks so: “This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks. It likely signals a big downdraft in the stock market, too”. 
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