Jeff Christian: It's Not Just Gold—Computerized Trading Used to Manipulate All Markets

Last week, towards the end of a very lively and comprehensive roundtable discussion on gold, Financial Sense Newshour host Jim Puplava asked his guests whether they thought the gold market was being manipulated. Of the three responses, CPM Group’s Jeff Christian was the most interesting. Here’s what he had to say:

“[S]hort-term manipulations happen. And it’s unfortunate for a couple reasons…it gives fodder to those people who prey on the fear of conspiracy theorists. It’s not a conspiracy theory: it’s people coming in and hitting the market. We looked at October of last year and, just as an example, on October 1st the price of gold fell sharply in a five-minute period because of heavy trading on the COMEX. And the conspiracy theorists say, “Somebody came in and whacked the gold market. It was the government trying to suppress the price.” And if you looked at the data you found that it was more than a hundred different people trading gold in that five minute period—selling gold. And they were doing it because they were using the same computers using the same price chart. And those computers said if gold drops below this level, sell. And we looked at October as a whole and we found seven five-minute periods with abnormally high volumes: more than a million ounces of gold changing hands in a five minute period seven times over the course of October on the COMEX. Four of them were buying events—people gunning stops and driving the price higher. Three of them were selling events driving the price lower. So, you look at that and then you look at the data, you realize in each case, it wasn’t a single entity doing the heavy buying: it was hundreds of people doing programmed computerized trading. And then you step back from gold and you realize that’s true across commodities. And, in fact, it’s much more severe in some of the less liquid grain markets than it is in gold and silver. Then you take another step back and you realize it’s true across financial markets; it’s true in stocks, in bonds, in fixed income securities, and stock futures. And so if you take off your gold-tinted realize that financial markets across assets have a problem with this computerized trading and it’s not Big Brother trying to suppress the price of gold.”

Long-time Financial Sense readers and listeners are certainly familiar with this viewpoint, which has also been expressed by guests Eric Hunsader of Nanex, Joe Saluzzi at Themis, HFT whistleblower Dave Lauer and our own Financial Sense Senior Editor, Cris Sheridan, who's written extensively on this subject since 2008 (see Deus Ex Machina, A High Frequency Map of the Market, and Is the Entire Market Rigged? as a few notable examples).

Also in the gold roundtable, Ross Hansen, founder of America’s largest private mint, says from his own experience with the metals market that gold is simply tossed around, along with other assets, by large groups of traders chasing the latest trend:

“These traders…are moving literally billions of dollars a day worth of money into metal and out of metal and into different commodities. And what they’re doing is they’re chasing their tail. And they’ll sit there with their Ouija Boards and they’ll talk about Fibonacci numbers and trends and crossovers and double-dips and hammerheads and all these other things that are meant to impress you…and a couple of years ago the vogue investment was precious metals…and now it's the stock market...they’re not looking at the underlying fundamentals—they’re looking at what they can make a fast buck on today.”

Lastly, John Kaiser of Kaiser Research Online, who has made a number of extremely prescient calls on the show, argues that gold will continue to rise because of two things: increasing global wealth and the long-term destabilization in the balance of power away from the U.S. Here, he explains:

“Gold rose in the past decade because China was coming on-stream and changing the power balance both economically and, ultimately, militarily in the world. China came along and started to grow the global economy at a much bigger pace than what was possible with just the mature western economies. And we’ve got two things going on here: one, the global wealth of the world is expanding and all the gold that exists is a function of the world, but also we have a long-term destabilization of the economic and military balance of power in place…the fact that gold can rise in a growing global economy makes perfect sense to me and doesn’t require any of these negative expectations [i.e. hyperinflation, economic collapse, etc.] and, furthermore, if you’re treating gold just as a hedge against inflation, it’s not a particularly helpful thing because in the United States, if you pay your taxes, you’re paying a 38% collectibles tax on the nominal gain that your gold bar undergoes.”

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