Commissioner Bart Chilton: Price Discovery In The Commodities Markets

A group of sociopathic megalomanics walk into a bar on a planet they own.  They laugh and heckle, scheme and conspire (as they always do, and always have), not noticing the dark, faceless figure that has appeared at the end of the bar.  "Who are you? This is a private party for important people, leave now!" one demands.  The stranger is impassive.  Others gather now, annoyed by the lack of respect shown their esteemed colleague. "Why are you still here, leave!  We are in charge here!  What on Earth do you want?"  At the mention of the word, the stranger glares straight into them, these voids which souls have long since left.  It slowly occurs to them that, left unchecked, this Thing will take the one thing from them they cherish above all else, their God…Power.

I awaken with a shudder. Ugh, what a nasty dream. I grab a cup of coffee on my way out the door, making sure to smile for the dozen or so cameras perched atop lampposts on the daily grind to work.

Yes, exactly, All are symptoms.

Love your material and insight, Chris. Couldn't help posting after hearing the BS spewed by this guy. You handled it well. Amazing how he completely blew off the wacky market behavior you've been harping on for years as good for the markets and liquidity. WTF, the guy admits he's not a trader and therefore probably doesn't even understand what you, or anyone else who watches the markets with regularity, are talking about. Then he deflects the the subject of market manipulation to the topic of retail scams which must be an easy fallback position to appease the sheeple. He is definitely a smooth operator, masterful in pushing convoluted BS and navigating the upper levels of the asylum.

I've often thought it would be good to get the occasional controversial guest onto these podcasts because so many of the guests are aligned so closely to our own way of thinking.  I think hearing alternative viewpoints force us to sharpen our understanding.

Or, to quote General Steele from MASH:

Two caveats for this post:
1)  I favor the free exchange of dissenting ideas, and support Chris for having interviewing Mr. Chilton.
2)  We should acknowledge that Chris has to use moderator decorum and tact, so I did not expect a severe challenge or strong language, though I thought the questions and follow ups were too soft considering the responses by Mr. Chilton, but after all, it is indeed Chris' site.

With that said, I feel compelled to completely rebut Mr. Chilton's comments. 

For two reasons-

 Because he is supporting a criminal and corrupt system that greatly harms the average citizen, by not speaking truth to power (assuming he knows the truth- which I suspect- and doesn't believe what he is saying), and,

Because some new readers may read these falsehoods and actually be swayed by these nonsensical statements.

There are so many wrong ideas promoted in the interview, it is truly a target-rich discussion. 

It is important to focus on the main ones.

The CFTC is a crack enforcement agency, and is effective at policing the futures markets.
"At any one time Chris, it may surprise people, at any one time there are between 750 and 1,000 individuals or entities who are under investigation by the CFTC. And that’s with a staff in the enforcement division of just 250 folks, just under 250. So they’ve got a big job and they aren’t actually able to get to all of these cases as much as they would like and that’s a big problem going forward."

Bull cookies.  With the vast amounts of untold billions being made by criminal trading (see below), and even larger damage to the average investor, the CFTC enforcement record is a tiny pinprick.

Trillions and trillions of dollars move through these markets. 

One of the largest markets, the derivatives market, is thought to be over a quadrillion dollars and is almost completely unregulated.  The CFTC openly acknowledges this, and whines about not having enough staff, which may be partially true, but I do not have any confidence that if their budget was increase and legal framework introduced, that they would be any more effective, based on their abysmal track record.

Of the remaining markets of trillions of dollars, and tens of billions of dollars of profits, and in spite of these alleged thousands of entities under investigation, in actual reality the CFTC reported that there were 240 new investigations and 67 enforcements for a total of $3.27 billion in monetary sanctions in 2014,  And if one takes just a cursory look at the enforcements, the largest was the LIBOR judgement of $580 million.   This may sound like a lot, but spread out over many global banks, all who are making billions of dollars of profit, apparently often from illegal and fraudulent trades, $580 million is a pinprick and is nothing more than a PR soundbite than any meaningful and serious enforcement.  The vast majority of the other enforcements listed are to my eye simple fraud, and for tiny to minute amounts, relative to the market size.

I note that 17 defendants had criminal judgments apparently.  None of them named Corzine or Dimon to the best of my knowledge.

None of the enforcements, upon inspection, with the sole exception of LIBOR, have anything to do with true punishment for market manipulation of trillions of dollars of critical commodities and other assets.  These "enforcements" are pinpricks, and would have zero effect on market participants that are committing fraud.  It is like writing $1 dollar speeding tickets once a year to chronic speeders. 

Did you really expect them to change, Mr. Chilton?

So, apologies if I don't give a standing ovation to the great enforcement work of the CFTC.  I tend to favor results over activity.   No one was ever extricated from a burning car by good intentions.

2.  HFTs are an improvement to markets.
"You noted that almost 100%, I mean it’s just shy of 100% of markets are electronic trading now—99 plus percent. And of that, roughly 50% depending upon which market it is or which exchange is taking – looking at the trades, that’s high frequency trading. It’s usually described between 30 and 50% in commodity markets and then about 50% in equity markets but that’s been increasing of late in commodity markets and at some point I think most of the trading will be high frequency trading in all of these markets ultimately."

"Well two things, one it doesn’t mean that there’s not some value still even though it’s going to be small with regard to floor traders. As a former trader yourself my guess is that you would tell us you think there’s a lot of value to what those guys do. And I still think there is particularly at the open and close when there are lots of bids and offers and I think floor traders actually have a way of keeping some order to markets, many times through loud voices or hand signals. But I still think there’s a value there but the business proposition for the exchanges for keeping the lights on and the heat running at these – air conditioning at these trade floors probably just isn’t there in the long term. It doesn’t mean there wasn’t some value that computers don’t have is my main point."

Total Bull cookies.  This statement isn't even able to be interpreted.  I really don't exactly know what Chilton is trying to say.  "Floor traders still have value", even though they are less than 1% of trades???  As museum exhibits?

The mere fact that competing firms are building servers closer to exchange servers to gain milliseconds of trading (e.g. front-running) advantage, tells you all you need to know about how corrupt the markets are. 

If a trading firm had superior analytical skills, superior algorithmic predictors, superior research and understanding of markets, superior trading positioning strategies, in other words, market participants were participating on the basis of free market fundamentals as opposed to thievery, you would not need millisecond advantages in trading. 


The arguments have been made by the HFT firms that HFT adds "liquidity" to the markets. 

That is complete and utter nonsense.  

To quote Ted Butler (a previous guest of Chris', November 1, 2014)

"The problem is that the CME has relied on High Frequency Trading (HFT) and other speculative trading schemes to pump up trading volume to drive corporate profits. This is a problem because it has forced the COMEX to cease accommodating real producers, consumers and investors in silver, gold and copper and instead to cater to those trading with HFT computers and to those speculating in large quantities of electronic contracts.

Real commodity producers and users have little use for the rapid short term speculative trading that has come to drive profits for the CME. Why would a silver mining company be involved in electronic trading measured in small fractions of a second? This can be seen in how little actual trading is done in COMEX silver by actual miners or silver users; I would estimate less than 5% of all COMEX silver futures trading is transacted by real producers and consumers of silver. More than 95% of COMEX silver trading is purely speculative in nature, with much of it nothing more than day trading by HFT algorithms. "

There are finite amounts of commodities available at any given time, and a finite number of market participants.  The numbers of trades may grow over time, as will numbers of trades naturally, as market sizes grow.

But trading speeds and raw numbers of trades have vastly outgrown the natural, organic grow of markets.  But more on liquidity next.

3.  Naked shorting is good because it increases liquidity.
Total 100% Bull cookies.

"So the question about whether or not a flood of orders is good or bad or is it the right price discovery is one that a lot of people have been thinking about lately and by and large the research that’s come out even just in recent days from the bank of England show that actually price discovery is improved through all of these orders. And it goes back to a very basic premise of liquidity. So the more people that are trading the greater liquidity, and the greater liquidity the better price discovery because there’s more people out there to either make bids or offers. And again if it was just me or you contending one way or the other it would be hard to defend, but the numerous studies that are out there sort of showed that price discovery is better with more trading. There’s also just really in the last several days a Baron’s report that showed similar results. So it’s almost to the point now where people are accepting that it’s good but the issue that I’ve been raising over the years is there’s something that regulators need to do differently because of these metastasizing and morphing markets and I think there is."

In contrast to Mr. Chilton's reference to the Bank of England (actually a co-conspirator with other central banks in price manipulation, so forgive my lack of confidence), a report in the Connecticut Law Review asserts that HFTs are likely illegal.

"This Article posits that some high-speed pinging tactics violate at least four provisions of the Commodity Exchange Act—the statute governing the futures and derivatives markets—and one of the regulations promulgated thereunder. The better approach is not to view high-speed pinging as a form of front running or insider trading, but as analogous to disruptive, manipulative, or deceptive trading practices, such as banging the close (submitting a high number of trades in the closing period to influence the price of a contract), spoofing (submitting an order for a trade with the intent to immediately cancel it), or wash trading (self-dealing, or taking both sides of a trade), all of which are illegal."
Gregory Scopino, Connecticut Law Review, February 2015.

Regarding the liquidity issue, this is the number one talking point of many people, including Davefairtex, who would defend criminal and corrupt markets, all in the name of glorious and magical "liquidity".

First of all, "liquidity" is an unnecessary $2 word created by economists to make them look smart and confuse people so as to steal their money. 

From, liquidity defined as:

"1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading

activity. Assets that can be easily bought or sold are known as liquid assets.

  1. The ability to convert an asset to cash quickly. Also known as "marketability."

I see.  There is no specific liquidity formula; however, liquidity is often calculated by using liquidity ratios"  (Is it not telling there is "no specific liquidity formula"- in other words, this liquidity is really good and really important- I can't measure it or define it quantitatively, but take my word for it!  Right! Got it!)

So it is the "the degree to which an asset can be sold without affect the asset's price?  What are we talking about precisely?

The entire point of markets is for assets to be bought or sold and have price affected, if there are imbalances in supply and demand. 

According to this definition, if I and Davefairtex exchanged a bunch of bananas for a dollar once this year, and a year ago we exchange the exact same bananas for the exact same dollar, that would be an infinitely liquid market- price change was zero, correct? 

Oh yeah, I forgot, "there is no specific liquidity formula".

And frankly, if a market is perfectly matching buyers and sellers, and the money supply and wealth creation are stable (i.e. the Fed is not artificially creating inflation as it has done for decades), then prices should be and ought to be perfectly stable and totally independent of the "level of trading".

I've got a simple revelation for Mr. Chilton, Mr. Dave, and the liquidity apologists. 

Markets are not supposed to be highly "liquid" at all times. 

Markets are supposed to reflect supply and demand. 

There are supposed to be, by design, natural periods of few sellers and lots of buyers. 

That is called "price increases". 

In free markets, prices will rise until buyers and sellers are in equilibrium.

There are also periods, also perfectly natural and healthy, where there are more sellers than buyers. 

These are called periods of "price decrease".  

This is the natural law of the free market.

This has nothing to do with liquidity.

The "false liquidity" Chilton and Davefairtex are referring to is corruption of the natural free market.  Naked shorting is accomplished by a few "persons and institutes of privilege" market participants. 

Naked shorting is creating "paper gold". 

Just to remind Mr. Chilton and Mr. Dave some laws of physics, paper gold is not real gold.  I'm referring to the stuff with atomic number 79 and atomic mass of 196.9655 g.mol-1.   Not the stuff that are LEDs on a screen or magnetic particles on a disk.  Just in case it is not clear what we are referring to.

Naked shorted paper gold futures are false certifications that assert that a supplier i.e. market participant has access to piles of physical gold equal to the amount of a gold contract, when in fact, they do not. 

This is called fraud. 

This is called deception.

This should not be called by a fancy name like liquidity or HFT or high volume market activity.

To demonstrate how absurd this argument is, if the gold market is a market where alledged physical gold is supposed to be exchanged with alledged cold hard cash, and somehow, magically, the gold "producers" are allowed to "produce" magical paper gold by printing a fake certificate (future contract) of gold that they in fact do not possess and never existed, then please, would the liquidity apologists tell me why the purchasers of gold should not be allowed to produce fake dollars in the exact same way, to purchase the fake gold, e.g. representing dollars that I in fact do not possess.

I would very much like to be able to use "naked dollars" that I am allowed to create out of thin air in order to purchase or hedge "naked gold" on these free and fair markets.

Is this not truly the most corrupt bastardization of a free market?

Markets are not supposed to be "liquid" when supplies are tight and buyers are many, and supplies are plentiful and buyers are few.  Markets are supposed to be "illiquid" during certain phases in order to allow true price discovery.

The fake paper gold naked shorts and "liquidity" actually do the opposite of they are claimed to do- they harm markets and corrupt true price discovery.

Why is this allowed?  Dave Kranzler captures the reasons well:

"One motive of the manipulation is to operate and control Comex trading in a manner that helps the Fed contain the price of gold, thereby preventing its rise from signaling to the markets that problems festering in the U.S. financial system are growing worse by the day. This is an act of financial terrorism supported by federal regulatory authorities. Another motive is to help support the relative trading level of the U.S. dollar, as we’ve described in previous articles on this topic. And, of course, the banks make money from the manipulation of the futures market.

The Commodity Futures Trading Commission, the branch of government which was established to oversee the Comex and enforce long-established trading regulations, has been presented with the evidence of manipulation several times. Its near-automatic response is to disregard the evidence and look the other way. The only explanation for this is that the Government is complicit in the price suppression and manipulation of gold and silver and welcomes the insider trading that helps to achieve this result. The conclusion is inescapable: if illegality benefits the machinations of the US government, the US government is all for illegality."

In addition to the immorality and corruption of the current system, we should be very aware that actual harm is being done to average families and innocent workers who depend on producing commodities for a living, to support their families.

So apologies if I do not extol the virtues of the "liquid" market composed of fake gold and high frequency trading.


For speaking on the side of sanity and rationality when it comes to exposing how the paper markets for PM's really work.  Of course, even in your long diatribe, you cannot fully capture the perversity of how the system is currently working… so let me add this;

A few observations. First, in this day and age of almost non-stop findings and reports that the big banks have conspired to fix prices in almost all the markets they deal in, the COMEX March silver deliveries would seem to certify that they are certainly the kingpins of COMEX silver. I’m sure all these banks could come up with a litany of cockamamie stories as to why they must deal in silver for their own accounts away from the simple explanation that they are just speculating and controlling the market, but you would be hard-pressed to come up with clearer evidence to the contrary than in the March deliveries so far.

Second, the fact that JPMorgan, in its proprietary trading account, was the largest stopper of 735 deliveries (3.7 million oz) would seem to coincide with my speculation that the bank has been accumulating physical silver in a serious manner, even as a number of its own customers issued deliveries this month – an apparent conflict of interest.

But the biggest concern is this – JPMorgan has been the biggest short in COMEX silver futures since taking over Bear Stearns and the bank’s taking of physical silver deliveries this month has occurred while it is still the biggest short with 18,000 contracts (90 million oz) still held net short. In order for JPMorgan to have taken delivery of 735 contracts this month for their own account and benefit means it had to be long those futures contracts while at the same time being short many more futures contracts. This is permitted by the CFTC and the CME, as commercials can hold open long and short positions in the same month (not allowed for non-commercials), but please step back and consider what I just said.

By being the largest COMEX silver short, JPMorgan has exerted the largest negative price influence on silver while, at the same time, has stepped up as the largest taker of physical silver on the COMEX in the first two delivery days of the March contract. Is this not, on its face, the most egregious and crooked circumstance that one can imagine? Manipulate the price lower and then scoop up the metal at bargain prices with the blessing of the regulators. With such blessings, it’s no wonder JPMorgan is considered the US’s most politically connected bank.

So... naked short to get the price down via a huge, manipulative short position, then take huge deliveries of physical at the new low price.  AND it's all legal!  You can't make this stuff up.  Market?  There is no market... this is a cartel with a unique dual purpose.. to keep the price low, and profit on both the ups and downs via full control of the paper and physical aspects of the market.    


So... naked short to get the price down via a huge, manipulative short position, then take huge deliveries of physical at the new low price.  AND it's all legal!  You can't make this stuff up.  Market?  There is no market... this is a cartel with a unique dual purpose.. to keep the price low, and profit on both the ups and downs via full control of the paper and physical aspects of the market.
Position sizing would fix the part of the problem where the banks "profit on both the ups and the downs" - which I agree that they do, and that it needs to be fixed.

That said - you still haven't been able to demonstrate any ability by any participant to "keep the price low" or to "get the price down."  You are thus assuming facts not in evidence - and in fact where there is substantial evidence against.  I must remind you again of that bull market from 2001-2011, all during which the goldbugs were just as sure as you are today that there was a powerful (and successful!) conspiracy to keep the price of gold in check.  This, while it rallied 600%!

If you just confined your rant to the obvious daily stop-gunning attacks that are most likely quite profitable much of the time, you'd have my full support.  And fixing that boils down to position sizing.


So speculators on both sides (both "nekkid shorts" and longs who will never take delivery) - properly limited in the size of positions they can take - are essential for providing liquidity to the marketplace.  Do you understand why this is so?

If the gold market were limited to just fundamental buyers (such as jewelry shops and mines), there would be very little trading, and that would lead to very wide spreads.  Instead of buying or selling a gold future for a spread of 30 cents, perhaps you'd pay $5, or maybe $10.  This raises the costs of hedging by a participant by a large amount, and it makes the market less useful for its intended purpose.

Also, liquidity is important for getting a trade done in a reasonable period of time.  If a mine wanted to hedge production for some reason in the above-mentioned situation, they couldn't - not until a jewelry shop came along with an order that just happened to match the delivery date.  And likely, the jewelry shop would only be able to buy some small fraction of that mine's production.

More participants = more liquidity = a better functioning market for the fundamental users.  And that's what speculators do.  In exchange for taking risk, they provide liquidity for the fundamental users who can then use the market to actually hedge production or buy forward.  More liquidity = cheaper price for hedging, because the spreads are narrower.

As a participant in these markets, I can tell you that spreads are a big deal.  Narrower spreads = a very good thing.  It basically reduces the friction involved in taking a position.  Narrower spreads lead to more liquidity, and more liquidity means the market functions better for its intended purpose.

And I'll make the point again - position sizing is really important to limit abusive trading practices.  Speculation (naked shorts & longs) = good, abusive trading practices by those same guys = bad.  Position sizing is the key to keeping the good, while eliminating the bad.

Now then, regarding HFT: I think some HFT is great, and some is terribly predatory.  The HFT players who are doing "computerized market making" end up narrowing spreads, which as mentioned, is a good thing.  They need to operate quickly so they can react and change their bid/offer to react to changing market conditions, but in essence, they are just computerized versions of the old market makers that used to be people.

The bad HFT players who use "special deals" offered by exchanges that allow them to front-run other traders and pilfer pennies, as detailed in "Flash Boys", are slimy weasels that need to be stamped out by the exchanges, but who won't stamp them out because the bad HFTs pay the exchange for the right to pilfer and front-run.  The solution is described by Brad Katsuyama.  I use his exchange for all my trades, since I like to support the good guys.  (My broker, IB, lets me specify where I want my trade to go).

Now regarding position sizing.  Isn't it interesting that CFTC has "been unable" to enforce position sizing for the big banks?  I wonder why that could be?  I suspect its way too large of a profit center for the big banks to give up on easily.  The profit potential attached to the ability to arbitrarily run stops is probably a big number.  An entire division's bonus pool probably depends on keeping this ability intact.

Bottom line: we need to know what we're fighting for.  Not all HFT is bad - but some of it sure is.  Let's just focus on stamping out the "bad HFT", not the "good HFT."  More participants ends up creating a lower cost product for the fundamental users.   And we really need to have that position sizing in place, too.

Lastly, by railing against "nekkid shorts" we just show ignorance.  Speculators just by definition need to go naked short.  This ability increases liquidity, which narrows spreads and helps the fundamental users take positions at a lower cost.  And after all, that's the purpose of having the market in the first place.  With proper position sizing in place, the daily banker abuses would end.

It wouldn't take many fixes to make this all work fine.

Hi davefairtex,
I always like reading your posts because you explain things and I end up learning something. I like the way you step back and explain some basics. I already understand the importance of speculators and the futures markets when it comes to trading commodities. What I don't understand is the need for leverage - or the "nekkid shorts" or longs, as you say.

If I can make money by understanding the particular market better than the next guy, why do we need to sweeten the pot by allowing leverage? It seems reasonable that you 'pay to play' just like a poker game (which may be a apt analogy). Like poker chips, you place your physical metal in the system and then speculate until you lose it all or cash out. 

If your argument is that fewer people would speculate without leverage, I still think that is preferable to the current system. If I were a jeweler or a miner, I would still prefer a larger price spread to $40 price swings in a single day. The usefulness of speculators is to dampen volatility, not amplify it.

thanks again for your posts,


…he really does have nice hair.  Just sayin.

I have very little stomach for arguing with you about manipulation.  It just takes me to a very negative place to do so.  I take it as settled fact that the markets are manipulated, and that this comes from the top.  You are welcome to your opinion.  What I preach comes down to this;  You can only really understand Gold through understanding what debt-based fiat currency is, and how it acts, both historically, and today in the new age of central bank (feigned) omnipotence.  Gold and Silver should be reflectors of all the risk… it is up to each of us to decide for ourselves why Gold and Silver are not acting as such for the last few years.   
Everyone has to decide for themselves on this point of manipulation as well… because it makes all the difference.  Simply stated;

No top down manipulation = prices do not go through a reset

Yes top down manipulation = step function reset ahead to higher prices (when the manipulation collapses)

Each of us will make our own beds.  I do not have the time or energy to compete with Dave's pulpit here at  

Your straw man argument against manipulation is that the markets have risen in the past… OK, fine.  Most commentators who I trust, who have looked at the markets through their varied financial experience, see the current manipulation regime as being more extreme than ever before.

Here is what Kranzler says… and this guy is really brilliant, U of Chicago MBA… can tear apart  a balance sheet and do forensic accounting like nobody else in the blogosphere;.  

The western Central Banks/bullion banks have assumed a “take no prisoners” policy with regard to the precious metals market.  They have been printing up and selling into the market paper gold futures contracts and other paper claims (ETF certificates, leases, gold “bullion” investment accounts, and other various sordid forms of paper derivatives) in an effort to offset the enormous amount of physical gold being accumulated by the east in order to hold down the price of gold/silver.   The reason for this is to prevent these two monetary metals from going parabolic and signalling to the world the severity of the west’s catastrophic financial and economic situation.

It’s unmitigated anti-gold/financial terrorism.   Here’s what that looks like:

The graph above shows the ratio of open interest in Comex gold futures to the amount of “registered” gold in Comex vaults.   “Registered” is the gold that has been designated as available for delivery.  As you can see, this ratio went parabolic in mid-2013.   It is likely then that the enormous amount of physical gold being swallowed by China, India and Russia began to “stress” the ability of the Fed/bullion banks to keep a lid on the price of gold.   It also, coincidentally or not, happens to coincide with the timeframe that I have identified as the peak of the current housing market mini-bubble (July 2013).    In other words, I believe the wheels began come off our economy in the summer of 2013.

Here’s an example of the anti-gold terrorism in action last Friday, just prior to the release of the non-farm payroll report (source:  TF Metals Report):

This graph shows the trading activity right before and after the release of the jobs report.  You see that heavy selling started in gold futures right before 8:30 a.m. EST.   But the report had not hit the newswires yet.  The metals bounced a bit and paused.  The report hit the tape at 8:31 a.m. and the price of gold was “flushed.”

If the fear was that the report would trigger a small interest hike from the Fed, that fear didn’t grip the stock market until later in the morning.   Furthermore, the S&P 500 seemed to rid itself of that fear today, rising over 8 points while gold finished flat and silver was down 15 cents.   There is a clear agenda to keep the price of gold/silver capped with paper derivatives.



Leverage allows fundamental participants to hedge without having to pony up one dollar for each dollar of hedging power.  Let's imagine you are that mine (or corn farmer) that wants to hedge your production.

In a hypothetical non-leveraged world, the farmer/miner short would have to post $1 in capital for each $1 of production he was going to hedge.  That makes hedging a whole lot more expensive for the hedgers.  A lot fewer producers would be able to hedge their production.  If your farm did $1M in corn production every year, you'd have to pony up $1M in cash to hedge it.  Know a lot of farmers with a spare million just lying around?  If your gold miner did $5B in gold production, they'd need to have $5B in cold hard cash.  Gold miners have the same problem as farmers.  They aren't cash-rich either.

And if speculators are really important (properly limited as to size of position), then it stands to reason facilitating their participation with "reasonable margin" requirements also makes sense.  More participants is better for the fundamental user.  Spreads narrow, and the market has more depth to it.  Trades can get done by the fundamental users without moving the market.  [If you've ever traded a thin market, or a market with wide spreads, its really an unpleasant experience.  Thinly traded markets expand costs expand dramatically, right along with risk.  It is very, very difficult to get out of a bad trade in a thinly traded market.]

Lastly, your thought that leverage "sweetens" the pot suggests you yourself may not have taken leveraged positions in the past.   At least in my experience, leverage isn't a sweetener, its a double-edged blade.

The frequency of the $40 swings are an issue.  Position sizing is the answer.  If the banks aren't allowed to dump 5000 contracts into the market all at once, they can't routinely run the stops.  And that would (I believe) largely solve the problem.  It might actually bring back more "good speculators" too, many of whom have likely been chased out by all the daily shenanigans.

We'd still have big moves up and down, but it would be due to stuff happening, not some kind of daily "Operation Bonus Maker."

Again, those sorts of assaults are "quick ATM runs" for the bonus-hungry bankers, but they cannot set the trend.  Otherwise - we would never have seen the bull market from 2001-2011.



I take it as settled fact that the markets are manipulated, and that this comes from the top...
Yes, I know.  But my point is not arguing about whether or not manipulation is happening, I'm only suggesting that whatever manipulation was occuring was simply not effective in changing the trend.
Your straw man argument against manipulation is that the markets have risen in the past.
Let's see.  A "straw man" argument is misrepresenting someone's argument to make it easier to attack.  That's not what I did.  I made my very own case - not against manipulation, but against effective manipulation based on a review of past goldbug statements, logic, and price evidence.

Let me review my points:

  1. Goldbugs dating back to the 70s have consistently accused the powers that be of effective, consistent manipulation of the gold market.

  2. If we take this as truth, then the powers that be were manipulating the market from 2001-2011.

  3. Viewing the price evidence, the manipulation clearly happening during this period was completely ineffective.  Worst Manipulation Ever.  600% bull market.  King Canute attempting to hold back the tide.  And failing.

It wasn't just one year.  It was 11 years, and it was a massive move higher.  And it just so happens, this bull move went right alongside a move higher in commodities, and a move lower in the dollar, which are two very important Golden Pillars of Jim Sinclair's Five Golden Pillars on which the big gold rally was based.

For those that don't know who he is, Jim Sinclair is one of those long-time goldbugs - a goldbug legend to be sure.  King World News calls him Mr. Gold.  We don't hear much about Jim's Pillars these days, not the way we did back in 2010.  Not sure why that is.  They seem to make sense to me.  If you'd followed them, you might have even bailed out of gold - or at the very least, reduced risk - once the pillars started to fail.

Sinclair was even pretty close on the price target.  And that took some gumption to say back in 2006 when he made the target.

So let's review where those pillars are today:

  1. Recognized top in the US Dollar:  FAIL.  Dollar has rallied back to 100, a level last seen in 2003.
  2. Trust in USA Paper Assets Declining.  FAIL.  By any independent analysis, the US remains the core economy - the primary reserve currency, the safe haven in times of trouble.  May not last - but its where we are today.
  3. Bullish general commodity markets.  FAIL.  Commodity markets have been in a nasty downturn since they peaked in early 2011 - just coincidentally, the same time gold peaked out.  We're getting close to the 2009 lows in commodities, by the way.  Certainly we haven't seen commodities at these levels since 2009.
  4. Triple deficits.  PARTIAL SUCCESS.  Deficit doesn't look great.  However, it has fallen as a percentage of GDP pretty dramatically since 2011.  Once again, that 2011 date looms large.
  5. Recognized top in US Long bond.  FAIL.  35 year US treasury bull market still very much alive.  In fact, we hit a new high at the start of 2015.
So according to Jim Sinclair, with maybe only 1 of 5 pillars in place, gold should be doing...what exactly?

I know.  Don't pay attention to Sinclair.  He knows nothing.  Its all manipulation.  Even though he successfully predicted more or less the top, right alongside a pretty cogent description of what tends to be correlated with the price of gold.

Again, my point isn't that manipulation doesn't happen.  Its that it doesn't work.  Clearly the forces in play - those Five Golden Pillars - were far more powerful than any attempt to manipulate price lower.

And now, most of the Pillars are gone.

Turns out, manipulation really does exist, and it works great - just as long as there aren't any Golden Pillars in place to support gold's move higher.

Jim, you should really be happy.  It means that once the Pillars return, gold will shoot higher, and there is nothing that any would-be manipulator can possibly do about it.

It sure makes me rest easy.

"But it is interesting how they got the year 2011 mostly wrong."
Did they? Or were they just overwhelmed by investor demand?

It was after that spike that TPTB and the perceived value of the dollar required the most ssophisticated algorithms and HFT to prevent that from ever happening agin.

"So either they are causing the peaks and the valleys, or they simply have a pretty good sense of when they will probably occur."

They are causing it, then they have a "pretty good sense" of what will result from their actions. A pretty good overview is provided of the previous day's manipulations Tues. through Sat. in Ed Steer's column.

That's one way of looking at it.
Personally I prefer to shun people who stand by and allow illegal activity to go on. Chris Powell has on several occasions brought up a federal law from the 1930's that would seem to allow the U.S. government to manipulate any financial market. But my understanding is the actions in the COMEX by entities like JPM violate the CFTC's rules.

Shouldn't' the head of the CFTC enforce CFTC rules?


It was after that spike that TPTB and the perceived value of the dollar required the most ssophisticated algorithms and HFT to prevent that from ever happening agin.
Sure, its all about sophisticated algorithms.  Couldn't possibly be about the widespread deflation we're experiencing that has dragged the entire commodity index back down to within spitting distance of the 2009 lows.  Nope, sure couldn't be that.  Its algorithms.  Sophisticated algorithms.

My sense is, the big guys ride prices up and down across the current trendline, going short at the tops and covering at the bottoms.  Seems like a clever strategy.  If we're clever too, we can notice what they do and act accordingly.

The guys on surfboards don't create the waves they ride - they simply take advantage of them.  Neither do the big guys have the power to set the trend - they just take advantage of it.


"Sure, its all about sophisticated algorithms.  Couldn't possibly be about the widespread deflation we're experiencing that has dragged the entire commodity index back down to within spitting distance of the 2009 lows."
That is correct; gold and silver prices are where they are on the COMEX are due to manipulation NOT deflation. You no doubt have browsed the continual feed of articles at the home page of or at like I have for years, and read some of the thousands of articles and listened to countless interviews there and in other places like I have. Few of the articles was even mentioning deflation until relatively recently, with the possible exception of people like Mike Maloney who was advancing the debate on which one we would have and when. Now everyone is on the bandwagon about deflation.

IF gold and silver prices had operated without continual manipulation THEN the current prices would have come down some from deflation. But that is not the case.

Hi DC,

Are you arguing that manipulation is the driving factor or deflation? I'm on of those literal thinkers so if there was a nuanced point i didn't get it.

I don't see why everyone finds deflation so hard to accept. The West isn't buying gold. Only 1 person i know even talks about it. Almost everyone else has mortgages to pay off, credit cards to repay, car loans to finance or student loans that need servicing. The world is drowning in debt. Where are all of these gold buyers going to come from? The game is up. Unless there is some debt jubilee on the way i don't see any immediate price action to the upside in commodities. It may even be a managed decline. Our rulers have been playing this game for a long time and so I assume that they will consolidate their position at any cost. That's how a food chain works.

There was an interesting interview with Bill Bonner over at Money Week which places the emphasis on cash during a credit crisis which i found to be counter-intuitive but interesting none the less. The theory goes than when people can't get access to credit then cash really does become king. It would be interesting to hear people's thoughts.

All the best,


You listen to interviews, and I do original research and track data.  Your conclusion from all those interviews?  The drop in the price of gold is caused by sophisticated algorithms allowing the users of said algorithms to set prices to be whatever they want.  (Why is gold at $1159 and not $35/oz?  These are sophisticated algorithms, right?)

My conclusion from my research: it is deflation effects.  I've been talking about that for quite a while.  Its nice to hear the goldbug storytellers are finally starting to figure it out too.  Just because they happen to be late to the deflation party doesn't mean that other, more observant, less pseudo-religiously-faithful didn't twig to the obvious and sell their GLD holdings long before.

Deflation is driven by a decline in bank credit, and a lot of it is happening in Europe.  Any time we are in that yellow box in the chart below - its deflation.  Notice the wave of deflation just after 2012 going into 2013?  That's when I first started to get really interested in deflation.  Now everyone is talking about it.

And as of right now, it looks like deflation is starting to ease up a bit in the EU.  When it breaks above the 0% line, we're back to credit growth and inflation once again.

You can see a similar drop in the rate of money creation in China.  Their annual growth rate in M2 has been cratering since the high in 2010.

Inflation expectations are driven by the rate of growth in money creation.  If growth is at 30%, and drops to 10%, inflation symptoms drop.  Gold becomes less interesting.


I don't see why everyone finds deflation so hard to accept. The West isn't buying gold. Only 1 person i know even talks about it. Almost everyone else has mortgages to pay off, credit cards to repay, car loans to finance or student loans that need servicing. The world is drowning in debt. Where are all of these gold buyers going to come from?
Indeed.  That's my experience too.  The "first wave" of gold buying was credit-creation related.  That was from 2001-2011.  That wave is done.  Is anyone talking about hyperinflation?  That's a tough sell these days, at least to "normal people" who aren't goldbug fanatics.

I expect a second wave of gold buying to come following more widespread use of capital controls, sovereign defaults, and overnight currency devaluations.

Also, if there are serious reflation attempts - serious attempts at dropping real helicopter money - that could drive more gold buying too.

But until such things start to happen outside (say) Cyprus, the deflationary/downward pressures on the commodity index and the upward pressure on the buck means that gold will have a hard time taking off.

"Where will gold buyers come from?"
How about Asia? No mention of Indian or Chinese buying in above discussion…and it is massive.