Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Price Discovery - When the Wrong Men Use the Right Means

Commodities / Gold and Silver 2014 Nov 28, 2014 - 11:54 AM GMT

By: Dr_Jeff_Lewis

Commodities

I’m not a real farmer. But I suffer the lessons and I do my best when I talk with friends, neighbors, and families about the unintended benefits of ‘growing your own’…

..There is universal agreement about the problem of not really knowing where ‘the food’ comes from. 

That may be at the core but is the basis for another fiasco of ignorance. The basic need for fair value underlies civil society; it is part and parcel to understanding where the food comes from. 


I referenced this piece for readers over the weekend. 

“Veteran S&P Futures Trader: "I Am 100% Confident That Central Banks Are Buying S&P Futures"

http://www.zerohedge.com/news/ 2014-11-22/veteran-sp-futures- trader-i-am-100-confident- central-banks-are-buying-sp- futures

I have been an independent trader for 23 years, starting at the CBOT in grains and CME in the S&P 500 futures markets long ago while they were auction outcry markets (and have stayed in the alternative investment space ever since). Now, I run a small fund.

I understand better than most, I would think, the "mechanics" of the markets and how they have evolved over time from the auction market to 'upstairs".  I am a self-taught, top down global macro economist as well as historian of "money" and the Fed and all economic and governmental structures in the world. 

One thing so many managers don't understand is that the markets take away the most amounts of money from the most amounts of people, and do so non-linearly.  Most sophisticated investors know to be successful, one must be a contrarian; and this philosophy is in parallel. 

Markets will, on all time scales, through exponential decay (fat tails, or black swans, on longer term scales), or exponential growth of price itself.  Why was I so bearish on gold at its peak a few years back for instance?  Because of the ascent of non-linearity of price and the massive consensus buildup of bulls. 

I believe Didier Sornette, author of "Why Stock Markets Crash", correctly summarizes Power Law Behavior, or exponential consensus, and how it lead to crashes.  The buildup of buyers' zeal, and the squeezing of shorts, leads to that "complex system" popping.  I have traded as a contrarian with these philosophies for some time.

The author makes an excellent case for the Fed intervention in the equity market. 
‘Equity market” could refer to any array or combination of companies using all manner of derivative products trading twenty four hours per day, nearly seven days per week. 

The entire is well worth the read. But, it was his description of how he saw the gold bubble that I got me thinking. Like everything, the further you go down the rabbit hole, the farther from familiarity you go. In the case of finance — far from reality. 

While it appears to be very detailed, it comes nowhere close to the surface of what happens in the trenches of price discovery…and what has been entrenched as the 'normal' course of COMEX business for decades.

Once an outcry floor worked by the ‘everyman’, protected by camaraderie and common sense; futures markets are now infested with a faceless ivory tower elite. An algorithm for disaster.

Before being replaced by programs, the floor traders were a close-nit gallery of regular people with an affinity for dealing and managing emotions. The markets were fast, efficient, imperfect, but protected by an unspoken code of honor that played as the middle man. How unromantic and rudimentary that must have been for today’s central planning, champaign socialist elite. And yet, it worked. 

There is no middle man anymore. 

Once the golden shackles were broken, big finance crept in and transformed the mechanics of price discovery. Faces were replaced with cables connected to servers in some new virtual reality. What we have today is an opaque tapestry of algorithms working independent of reality.  

Ultimately, they disappear in the wake left behind by the natural market. This pricing mechanism is a living fantasy that is worshipped by a legion of direct and indirect beneficiaries. Derivatives wagging dogs. 

But the risk is real. Responsibility for consequence gone. In 2011, everything happening in reality was woven into a narrative that fit the price discovery. Price action made the commentary. Gold wasn't a bubble - the move didn't move the masses. 

In a fiat system, gold and silver will always be either bubble asset or hated asset. 

In September and October of 2010, long before the parabolic ascent to come as the price flirted with $1000, consensus was convinced it was a bubble. Plenty of evidence suggests direct intervention. All along the way, the ascent toward $2000 gold faced all manner of attempts by bullion banks to slow the price. 

GATA.org is an absolute must read in order to establish the premise and deep foundation of opaque, yet legal intervention. 

Writing options, activity in the miners or adding selling positions can cap the daily price movements which, no doubt, appear omniscient and legitimate by taking the other side of the action then finally adding selling positions to slow down the rise in price. 

Observers had been calling for the drop in price; they had to be right eventually. And there is a pseudo-science for interpreting the movements of manipulated markets. So what?

The only thing one can know for sure is a scary reality. Nothing has changed. 

Gold is managed. Then and now.

The whole thing reminds me of the old Chinese expression:

When the wrong man uses the right means, the right means work in the wrong way. 

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2014 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in