How to crash a market


Bill Downey (goldtrends.net) is a no-nonsense guy, and if my periodic reading of his daily email for futures traders advice is representative, he's been on the right side of practically all of gold's big moves up and down for the past few years. Anyway, I was surprised to read this from him today. I'm not qualified to comment on whether this specific accusation is true or not, but lately it seems many un-usual suspects have become perplexed at the counterintuitive trading of the gold market. 

HOW TO CRASH A MARKET

Gold
Yesterday we reported the critical inventory level at the COMEX and JPM VAULTS. First the FEDs leaked out the FOMC minutes early and compounded the sell off by announcing that CYPRUS would sell 400 million dollars worth of Gold. Cyprus banking sources said no such talk took place.

SO WHAT TO DO NEXT? T
here is only one way out of this. MAKE THE MARKET COLLAPSE and trip up all the stops at 1525. Then ---as the market collapses, STOP THE PHYSICAL MARKET FROM the ability to buy. And how can that happen? Read on for today’s lesson in market manipulation.

Physical inventory drawdown at JPM
Physical Drawdown at COMEX

The selling began last night from 1564. By time we got to COMEX the price was down to 1542. And then the attack began. Wave after wave of selling until it got to 1525.  Then they break down the price and the stops start getting tripped up and the selling accelerates.

THEN – ALL OF A SUDDEN the LONDON PHYSICAL PLATFORM THAT BUYS AND SELLS PHYSICAL GOLD GETS LOCKED UP. THE SYSTEM FREEZES.

What does that mean?

No one can get to the PHYSICAL MARKET TO BUY at these low prices but at the same time, they CAN’T SELL or protect their position.
Meanwhile the futures market continues to drop.

So what happens? The physical market holders begin to panic. How can they protect themselves as they can’t sell either?
There is only one solution, especially during a panic.

THE PHYSICAL market has no choice but to enter in FUTURES AND SELL in order to hedge their physical positions.

From there the MARKET GOES into a free fall as the physical market CAN’T BUY AT THESE LOW PRICES; they can only sell FUTURES TO HEDGE THEIR long physical holdings. Now it gets worse as underfunded players are getting wiped out and now they have to liquidate. The market goes into a total collapse as all the stops below 1525 get tripped up and all the stops at 1499 also as the market tanks to 1490.

I hope you got the picture on how the control boyz forced a major sell off. They LOCKED the physical market platform and they have total plausible deniability. HOW?

THE COMPUTER BROKE DOWN ---it couldn’t handle the traffic and it shut down.

VOILA. The perfect excuse and the perfect scenario.

THE PHYSICAL MARKETS CAN’T BUY -------
Let me repeat that. THE PHYSICAL MARKETS CAN’T. They can only sell futures to hedge their positions.

That completes our lesson for today on how to force a major selloff. You start the ball rolling to where all the stops are and then you bring it down to where all the stops are at the lows and then you SHUT OFF THE PHYSICAL SYSTEM and stop them from buying and at the same time you force them to sell the future’s on top of it.

Now What?
The banks and brokers will be open all weekend to issue all the MARGIN calls. If the money is not received by Sunday night the positions will have to be liquidated. Just when the market is at its lowest liquidity and the longs have had all weekend to think about it and the media has had time to tell everyone that the bull market is over. It should be interesting Sunday night.

19 comments:

duggo said...

This is where you hang on to your physical as the sign shows that the collapse is happening.

S Roche said...

The London physical market is the inter-bank market. My understanding is that there is no "platform" for this OTC market, particularly wrt the allocation of physical metal. It is case by case, trade by trade directly between third parties and the banks. There is no single "computer" to break down.

GM, could you please provide details of what alledgedly happened, as this sounds like nonsense to me.

I got some of my fingers caught in the tail-gate when I backed up the truck at $1502, (a flesh-wound), and scooped some more on board at $1489... but was not short on the way down so wtfdik?

Dan D. said...

Nonsense and surely this will now be circulated among the bold bulls.

What is most appaling is never once do these perma bulls recommend selling some metal. It's always a buy buy buy battle cry (unless you are Eric Sprott).

What happened today was liquidation. The clues were out there for anyone who bothered to search for them that such a breakdown was on the verge of taking place.

These perma bulls missed it and didn't tell any of their subscribers to take profits. That is more criminal than today's liquidation selling.

GM Jenkins said...

SRoche - I don't have any more details, this is just a copy-paste. The main reason I posted this was because I wanted to see what others thought. If you say it's nonsense, then it prob is.

duggo - I don't disagree with your general point- this weird atmosphere of low yields, commodities falling, gasoline falling, safe havens crashing, yet vix at multi-year lows, stocks at all time highs, corruption left and right, printing and confiscation left and right etc. suggests the sky might be falling. But the drop below July 2011's weekly close is a BIG DEAL. I did not expect this. As of now I've closed all metals trading positions and even unloaded a small amount of my core metals positions just to have more cash for buying back lower. I hate to do that but this is serious chart damage IMO - it's not the kind of thing that will lead to an immediate V-based recovery (unless it really is a completely orchestrated move of some sort).

GM Jenkins said...

Thanks Dan D

S Roche said...

Maybe Cyprus really IS a template, cash at risk and gold to be sold. Cue the "excess" gold of all the FNPIIGSS.

ZH ran an interesting chart showing recent correlation between JGB volatility and gold inverse.

Whatever just happened, I think it was serious.

Dan D. said...

I agree with your inference to something serious. S Roche. The damage on a technical level today was severe. I don't buy into the "smash" theories. I believe this was a liquidation event and wewill soon find out what triggerred it.

Regards,

S Roche said...

Dan D,

A lot of the folk you criticise discourage trading and exhort everyone to just stack precious metals. They may well be proven right. Jim Sinclair, for one, has made it the final act of his life's mission to tell his followers when to sell.

I know the metals mafia really gets your goat, but, in the scheme of things, aren't there worse villains out there?

mortymer said...

How much are we from the lesson in 1976?

DURING INFORMAL CONVERSATION AUG 31 WITH EMBOFF ABOUT DAILY FOREIGN EXCHANGE AND GOLD MARKET RATES, SWISS NATIONAL BANK FOREIGN EXCHANGE DEPARTMENT OFFICIAL (POPPOS) SAID THAT ZURICH GOLD MARKET MIGHT CLOSE IF GOLD PRICE STAYED AT 100 OR JUST UNDER 100 FOR SEVERAL MONTHS, BECAUSE GOLD SALES WOULD NO LONGER BE PROFITABLE AT THAT PRICE. POPPS SAID THERE HAD BEEN REPORT THAT AT LEAST ONE LARGE GOLD MINE WILL BE CLOSED IF PRICE DOES NOT RISE SOON. GOLD CLOSED AUG 31 AFTER BUSY DAY AT 103.75, OPENING WAS 102.75. DAVIS

Source: https://www.wikileaks.org/plusd/cables/1976BERN03913_b.html

Supply/demand working nicely or gold a political metal?

Louis Cypher said...

GM,
I was toying with whether I should post this or not. I was going to ask the man himself to clarify in an email first but didn't get to it today. Bill is not given to flights of fancy and as you pointed out he is damn good at charting this market and tells his subscribers "60%, 70% etc chance of this happening". Kind of like a weather forecast.
I'll shoot him an email now.

Dan D. said...

A lot of the folk you criticise discourage trading and exhort everyone to just stack precious metals. They may well be proven right. Jim Sinclair, for one, has made it the final act of his life's mission to tell his followers when to sell.

That's the problem ... they can claim that gold going to 5,000 was a correct call .. 30 years from now. People care about the here and now. I'm tired of every sell event following the same script.

Yes, there are worse villains out there but by discussing them in the comments section of a post that alleges an orchestrated price smash would be veering completely off topic.

Have a good weekend.

victorthecleaner said...

GM,

take a look at the GLD bar lists. Every trading day, we had allocations and deallocations. I don't think any computer system was down.

Victor

S Roche said...

According to Cameron Hanover Draghi did it, effectively putting the Cyprus gold liquidation template on the table.

Biosci said...

S Roche,

You say "A lot of the folk you criticise discourage trading and exhort everyone to just stack precious metals...in the scheme of things, aren't there worse villains out there?"

There are two elements of your premise that I disagree with. First, while you can find the "don't trade" message if you look for it, that message is hugely undermined by the steady stream of price and trend predictions that are an invitation to speculate. Second, and IMHO much worse, is the drumbeat behind silver as a monetary metal. There is a legion of silver idiots in their echo chamber but the hypocrites who are blatantly profiting from people's fear (*cough* Sprott *cough*) are unforgivable.

Are there worse villains? Sure, Fox News and MSNBC come to mind, for the systemic damage they're doing to the US political structure. But this blog isn't competing for that audience. Family squabbles are always the nastiest ;).

-BS

S Roche said...

@Biosci,

I have been down this path before with Dan D (and Jd'A) so I will spare them.

Fox News and MSNBC huh? Anyone else? ... Ok, that was a rhetorical question which I will answer for you.

Let's start with MERS which has destroyed the property title system in the United States and defrauded states of hundreds of millions of revenue. States that cannot pay pensions. REMIC is the the fraud that dare not speak its name, remember it? If buyers of empty Real Estate Mortgage trusts are successful, all US banks are gone, another tax dodge. LIBOR, don't worry about that. The London Whale trading proprietary positions after Dodd Frank with depositors money, a storm in a teacup. Mary Shapiro becomes a consultant with Promontory fresh from running the SEC and denies the revolving door accusations because ... she is not going back into government, but fails to acknowledge she came from FINRA. Corzine. HFT. Goldman. Congressional Insider Trading....

I could go on, and on and on, but I will leave you with this in regard to your holding dopey (largely) US PM commentary accountable:

The law locks up the man or woman
Who steals the goose from off the common,
But leaves the greater villain loose,
Who steals the common from off the goose.

Dan D. said...

Back to the point here ... The original article from Downey...

I've been doing more digging this weekend as have others.

These are serious claims made by Bill Downey in this piece and I made sure to read his entire essay over on his own site to make sure I wasn't missing anything. Many points captivated me and of course lead me to question the validity of the claims he's making here.

He alleges that the physical market was shut out. That one couldn't buy physical if they wanted to. However HE PROVIDES ZERO PROOF to substantiate his claims going so far as to even predict this won't be reported (because in my interpretation of what I've gathered, it DID NOT HAPPEN)


He says;

"VOILA. The perfect excuse and the perfect scenario.

The physical markets couldn’t buy at those low prices.

Let me repeat that. The physical markets couldn’t buy. They could only sell futures to hedge their physical gold positions.

Of course this will all be reported on the news and in the financials right?

Wrong.

None of it will be reported as none of it was reported on Dec 29th, 2011 when the control boyz did the same thing and locked out the computer and left the physical market holding the bag. Not one word hit the papers"


--- Boom ... There's his out. Don't you think such an event would have hit even one news agency or financial reporting outlet?

Instead, readers are left to believe him because he says so!!!!

He continues;

How do I know all of this happened today?

Because I was in direct contact with a big physical dealer out of the mid-east as it was happening. They have taken the time to explain the physical market and how they get SHUT out of the game --- just like they did during the last panic (and physical shortage) in Dec of 2011.

Here is the screen shot of the actual physical market in action from January 4th 2012 that the physical trader sent me.


So, he tells us that's what happened on Friday because a dealer told him it was happening. In law we call that hearsay evidence and it isn't admissible for a reason.

According to Downey we have to believe that this is the chain of events leading to a physical buy shut out becuse of his circumstantial compilation of selective facts culminating into a "call" he received from a trader.

I couldn't make up these shennanigans if I wanted to. Downey has made it too easy to attack him on this.

Note on his own website Downey attaches a screenshot from January 4th 12 .. We don't get a screenshot from Friday's events... Why not?

As was told to me by a friend who knows this market better that me, the screen shot is not of a "physical" market but just a trading platform from a bank (one of many, each BB has their own platforms) for trading spot unallocated XAU/USD FX pair.

We coulsnt believe that Downey was trying to pass this off as "the" London platform.

This story wreaks of a fabricated essay, written after the fact to include as much circumstantial and hearsay in it to keep the reader intreagued and sell the "maniupulation" story.

The reason why no financial outlet is reporting it is because it didn't happen. We don't get trading halts without official press releases from the exchange or market explaining the glitch. We can't go down in New York for 2 minutes with it being reported on somewhere.

I will be running a blog post on this as I complete my own investigation into these claims.

S Roche said...

Dan,

Why not start with a polite note to Bill pointing out your concerns. He might retract, which, (imao), would have a greater positive effect.

hasan said...

From my point of view there is a huge risky for crashing fund. I'm qualified to comment on whether this specific accusation is true or not, but lately it seems many un-usual suspects have become perplexed at the counterintuitive trading of the gold market. So I think farm land sector is more secure.

farmland investment funds

S Roche said...

@Biosci (&Dan D &Jd'A),

I know the caravan has moved on but this dog wants to bark...

Nassim Taleb is taking on a far greater element than the mad metals mob: http://www.fooledbyrandomness.com/SandisTaleb.pdf and the book "Antifragility" now being turned into a free online textbook.

He is attacking the #macrobullshitters (if you follow him on Twitter he is trolling them) and starts with your point Biosci, that predictions beget speculation, just he is starting with much bigger fish: essentially everyone!

All the best,