Monday, January 29, 2018

Futures Markets Manipulated by "Spoofing," Gold Bugs Right All Along?

I saw this come across one of my news feeds this morning (I don't remember which, I pay attention to several):
"WASHINGTON (Reuters) - U.S. authorities were set to arrest several people on Monday in connection with a federal investigation into so-called spoofing and manipulation in the U.S. futures market by three European banks, three people with direct knowledge of the matter told Reuters...

...UBS, Deutsche Bank and HSBC and former traders at the banks, as well as individuals at other firms, were charged following a large-scale multi-agency probe including the Commodity Futures Trading Commission (CFTC) into so-called “spoofing” in metals and equities futures...

...Spoofing, which is a criminal offense under the 2010 Dodd- Frank financial reform law, involves placing bids to buy or offers to sell futures contracts with the intent to cancel them before execution. By creating an illusion of demand, spoofers can influence prices to benefit their market positions." -- M. Price
I have part of my portfolio in precious metals. I keep up on goings-on with those particular investments by reading and listening to podcasts. It has been a persistent theme among the so-called "gold bugs" that contribute their viewpoints that the price of gold and other precious metals has been artificially suppressed by futures market manipulation of the spot price, absent which prices of precious metals would soar. And so they patiently stack up bullion while waiting for the day to come (a day that they insist is inevitable, but always seems to be tomorrow...).

Well... what if they're right?

The article I've linked to above states that the investigation that has led to these pending arrests has been going on "for more than a year." Consider this one year gold price chart from Money Metals Exchange:

There are a lot of factors that drive the price of a global commodity like gold. However, its pricing is heavily dependent upon price discovery in the futures markets. So as these arrests go forward and the word spreads that market manipulation doesn't pay anymore, if the prices of gold and silver suddenly begin to rise, then one has to wonder...

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