It is more powerful than JP Morgan. More influential than Goldman Sachs. It can override any action taken by Ben Bernanke in less than one millisecond. It does not care how much metal is in Comex warehouses and it knows nothing about quantitative easing. If it goes up, it buys. If it goes down, it sells. Gold and silver bugs: meet your true enemy, the robot:
While many if not most gold and silver bugs believe every move in gold and silver is manipulated by JP Morgan, the Fed, the bullion banks, etc (the “Cartel”), the reality is that most markets, commodities in particular, are driven by systematic hedge funds. These funds use computer algorithms to decide when to buy and sell. Several of the largest include John W. Henry & Company and FX Concepts, which have had great success over the years both in performance and asset growth. As shown below, systematic funds dominate the CTA space. According to Barclay Hedge, systematic funds control $250 billion of assets at 2Q11, whereas discretionary traders (i.e. humans) have only $30 billion under management.
While each systematic fund has its own unique characteristics, the strategies are all generally the same: trend following/momentum. That is, they buy whatever is going up and sell whatever is going down. They don’t care about fundamentals, or news flow. All they care about is price, and which way it is moving. Given that these systematic funds comprise the vast majority of capital trading commodities, moves in commodities, particularly gold and silver will thus likely not be explained by fundamentals. Furthermore, given that many of these systematic funds operate similar strategies, they are prone to buying and selling all at the same time, leading to dramatic moves like the sharp rises and declines exhibited by gold and silver in recent months.
Thus, when you see dramatic moves in gold and silver on little or no newsflow or if it moves contrary to fundamental conditions, do not blame manipulation or The Cartel. Blame the robot.