Wednesday, November 20, 2013

Gold and Silver updates - November 20 , 2013 - Ironic how we see another furious gold slamdown , which caused a twenty second halt of trading in gold - the days after the FSA announced a " review " of gold benchmarks , including the London Gold fixing ( I'm sure in 5 years they'll find no manipulation has occurred like the CFTC found with its silver investigation )

Afternoon moves.....

30 Minutes Later - Markets Tapering (Gold Limit Down)

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The initial knee-jerk taper-on move was met with reactive buying (as per trading guru Steve Liesman's wisdom) but that hope bounce (really only seen in stocks) has faded now and assets are pressing their extremes. USD pushing higher, Treasury yields higher, stocks and gold lower... Of course, all it takes is for one algo to get the idea of pricing in the inevitable subsequent un-taper and to send the entire risk complex soaring. Silver is now below $20 and Gold is Limit Down

Gold Market Halted For 2nd Time Today Following FOMC Minutes Monkey-Hammering

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For the second time today (and 4th in the last 3 months) - at least this time on some actual news - Nanex notes that gold futures have been halted for 20-seconds following the release of the FOMC minutes. 1,500 contracts took us down at 6:26ET this morning, this time it was even more...
9. December 2013 Gold (GC) Futures Trades.

10. December 2013 Gold (GC) Futures Quote Spread.

Hilsenrath's 1057 Word FOMC Digest In +/- 1 Minute

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It took Hilsenrath just under a minute to pump out his 1057 (excluding the title) word thesis on the FOMC minutes. As usual, this is indicative of a comfortable embargo cushion which one can be assured was unbreached, as anything else would be very illegal.
From the WSJ:
Fed Minutes Takeaways: On Track to End QE, but Stick to Low Rates
Federal Reserve officials had a wide-ranging discussion about the outlook for monetary policy at their Oct. 29-30 policy meeting. The bottom line was that they stuck to the view that they might begin winding down their $85 billion-per-month bond-buying program in the “coming months” but are looking for ways to reinforce their plans to keep short-term interest rates low for a long-time after the program ends.
They struggled to build a consensus on how they would respond to a variety of different scenarios. One example: What to do if the economy didn’t improve as expected and the costs of continuing bond-buying outweighed the benefits? Another example: How to convince the public that even after bond buying ends, short-term interest rates will remain low.
Here is a first look at key passages (in italics) and what they suggest about Fed policy:
ECONOMIC OUTLOOK: It looked a little softer in the near-term, but officials weren’t veering from their view on how the recovery would play out:
Although the incoming data suggested that growth in the second half of 2013 might prove somewhat weaker than many of them had previously anticipated, participants broadly continued to project the pace of economic activity to pick up. The acceleration over the medium term was expected to be bolstered by the gradual abatement of headwinds that have been slowing the pace of economic recovery—such as household-sector deleveraging, tight credit conditions for some households and businesses, and fiscal restraint—as well as improved prospects for global growth. While downside risks to the outlook for the economy and the labor market were generally viewed as having diminished, on balance, since last fall, several significant risks remained, including the uncertain effects of ongoing fiscal drag and of the continuing fiscal debate.
OUTLOOK FOR BOND BUYING: Given their expectations for the economy, they still expect to end the program in the months ahead:
Participants reviewed issues specific to the Committee’s asset purchase program. They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.
WHAT IF THE BOND-BUYING PROGRAM STOPS WORKING BEFORE THE LABOR MARKET IMPROVES: The Fed might end bond buying and find another way to stimulate the economy.
Some participants noted that, if the Committee were going to contemplate cutting purchases in the future based on criteria other than improvement in the labor market outlook, such as concerns about the efficacy or costs of further asset purchases, it would need to communicate effectively about those other criteria. In those circumstances, it might well be appropriate to offset the effects of reduced purchases by undertaking alternative actions to provide accommodation at the same time
KEEP IT SIMPLE, STUPID: Fed officials are trying harder to keep a consistent message after the confusion in markets earlier this year.
Participants broadly endorsed making the Committee’s communications as simple, clear, and consistent as possible, and discussed ways of doing so. With regard to the asset purchase program, one suggestion was to repeat a set of principles in public communications; for example, participants could emphasize that the program was data dependent, that any reduction in the pace of purchases would depend on both the cumulative progress in labor markets since the start of the program as well as the outlook for future gains, and that a continuing assessment of the efficacy and costs of asset purchases might lead the Committee to decide at some point to change the mix of its policy tools while maintaining a high degree of accommodation
MODEST SUPPORT FOR THRESHOLD CHANGE:The Fed has been saying it will keep short-term rates low until after the jobless rate falls below 6.5%. Some economists think the Fed should lower that threshold to provide more support to the job market. There wasn’t a great deal of support for such a move.
A couple of participants favored simply reducing the 6½ percent unemployment rate threshold, but others noted that such a change might raise concerns about the durability of the Committee’s commitment to the thresholds.
INFLATION BOUNDS: The Fed is also considering offering a lower bound on inflation. That got some support, though not rousing.
In general, the benefits of adding this kind of quantitative floor for inflation were viewed as uncertain and likely to be rather modest, and communicating it could present challenges, but a few participants remained favorably inclined toward it.
LOW RATES FOR LONG: Fed officials appear to be gravitating toward an “inertial” policy approach. In other words, toward assuring the public that the Fed won’t be in a hurry to raise short-term rates even after its 6.5% threshold is crossed.
Several participants concluded that providing additional qualitative information on the Committee’s intentions regarding the federal funds rate after the unemployment threshold was reached could be more helpful. Such guidance could indicate the range of information that the Committee would consider in evaluating when it would be appropriate to raise the federal funds rate. Alternatively, the policy statement could indicate that even after the first increase in the federal funds rate target, the Committee anticipated keeping the rate below its longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly. Other factors besides those headwinds were also mentioned as possibly providing a rationale for maintaining a low trajectory for the federal funds rate, including following through on a commitment to support the economy by maintaining more-accommodative policy for longer. These or other modifications to the forward guidance for the federal funds rate could be implemented in the future, either to improve clarity or to add to policy accommodation, perhaps in conjunction with a reduction in the pace of asset purchases as part of a rebalancing of the Committee’s tools
DON’T FORGET IOER: The Fed pays 0.25% to banks that keep reserves on deposit with the central bank. Some economists think it should reduce that rate to encourage lending. The idea hasn’t had much traction in the past, but it is back in play.
Most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions.

Morning news and news.....

Furious Gold Slamdown Leads To Yet Another 20 Second Gold Market Halt

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What do the following dates have in common:September 12October 11 and now,November 20? These are all days in which there was a forced gold slamdown so furious, it triggered a "stop logic" event on the CME resulting in a trading halt of the precious commodity. In today's case gold trading was halted for a whopping 20 seconds as the market tried to "reliquify" itself following what was a clear attempt to reprice the gold (and silver) complex lower. Needless to say, there was absolutely no news once again to drive the move. Ironically, this comes just as the London regulator is launching an investigation into London gold benchmark manipulation - we are, however, confident that all these glaringly obvious manipulative events that take places just around the London AM fix will be routinely ignored. After all it is perfectly normal for someone to dump 1500 GC contracts in one trade and suck up all the liquidity from the market with zero regard slippage costs, or getting the best execution price possible. Well, it's normal if that someone is the Bank of International Settlements.
Since there is nothing new in the narrative,here is what we said last time this event happened just over a month ago:
What is Stop Logic? Basically, it is a the mother of all stop hunts, which takes out the entire bid stack and continues until such time as there is absolutely no liquidity left in the entire market! From the CME:
Stop Logic detects potential market movements caused by the triggering and trading of Stop orders where the resulting price move would extend beyond an exchange specified threshold.

The triggering of Stop orders can potentially exaggerate price movements in temporarily illiquid markets.When triggered Stop orders attempt to move the market to an executing price beyond a pre-established value, a Stop Logic event occurs. Stop Logic detects these situations and responds by placing the identified market in a Reserved state for a predetermined period of time, usually 5 to 10 seconds, depending on the instrument. During the Reserve period, new orders are accepted and an Indicative Opening Price (IOP) is published, but trades do not occur until the Reserve period expires, thereby providing an opportunity for participants to respond to the demand for liquidity. At the end of the Reserve period, the instrument will re-open and matching will resume.

When a futures contract designated as a lead month contract experiences a STOP Logic event, associated options markets are paused and Mass Quotes canceled.

Stop Logic will not prevent markets from ultimately moving in the direction of the order flow, but allows time for liquidity to enter the market so that new orders can be matched against the triggered stop order(s).
Of course, the liquidity we re-enter at a time when the prevailing price has been reset substantially lower on what is basically a "banging the open" type of event, or in this case market open, when one or more traders attempt to generate the well-known "momentum ignition" event so known to HFT algo manipulators everywhere.
Most indicative is that this is taking place less than 24 hours after the FSA announced it was investigating precisely this kind of gold manipulation. What's the saying... "in your face"?
And, as usual, capturing this moment of epic manipulative smackdownness which took place precisely at 6:26:40, here is Nanex showing both the 20 second trading halt and the evaporation of all liquidity following the forced sell of 1500 GC contracts pushing the price of gold over $10 lower.
1. December 2013 Gold (GC) Futures Trades.

1b. December 2013 Gold (GC) Futures Trades - Zoom 1.

1c. December 2013 Gold (GC) Futures Trades - Zoom 2.
The 20 second halt shows up clearly. 

2. December 2013 Gold (GC) Futures Quotes.

2b. December 2013 Gold (GC) Futures Quotes. Zoom 1

2c. December 2013 Gold (GC) Futures Quotes - Zoom 2.

3. December 2013 Gold (GC) Futures Depth of Book 

3b. December 2013 Gold (GC) Futures Depth of Book - Zoom.

Gold Manipulation Probed By U.K. Regulator

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As everyone knows, and as we showed yesterday in our infographic du jour, Wall Street manipulates everything, EVERYTHING.... except gold. Which is why were absolutely floored by what just flashed on Bloomberg:
More from Bloomberg: "The FCA review is preliminary and hasn’t risen to the level of a formal investigation, said the person, who asked not to be identified because the matter isn’t public. The person declined to say which gold benchmarks were under scrutiny. One of the key benchmarks is the London gold fixing, which determines the spot price for physical gold and is set twice daily by a panel of five banks."
No. That's not true. That's impossible.
Nobody has ever, ever manipulated gold in the history of St. Wall Street. After all, why else would the CFTC and Alexander Godunov repeat, year after year, that unlike every other product, gold has never been manipulated.
Then again, we aren't holding our breath until this probe finds that the biggest manipulators in the gold market are central banks themselvesnothing.
As for everything else....
Foreign Exchanges
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.

Energy Trading
Banks have been accused of manipulating energy markets in California and other states.

Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.

Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.


With net volume being what it was in gold yesterday, I wouldn't read a thing into Tuesday's price action, and the highs and lows aren't even worth my while to look up.
Gold closed at $1,275.20 spot, down 80 cents from Monday's close.  Net volume was microscopic at only 72,000 contracts.
But the silver price action was slightly different.  The HFT boyz set a new low price tick for this move down about 11:30 Hong Kong time on their Tuesday morning.  The subsequent rally made it back above Monday's New York close by the noon silver fix in London, and that pretty much all she wrote for the remainder of the day both in London and New York.
The CME recorded the low and high ticks at $20.20 and $20.475.
Silver closed in New York yesterday afternoon at $20.34 spot, down 5.5 cents from Monday.  Net volume was pretty light as well at only 24,500 contracts.
Platinum and palladium didn't do much price-wise until the equity markets opened in New York.  Then both spiked higher until 10 a.m. EST, and then both rallies were met by sellers of last resort.  Both finished up a few dollars on the day.  Here are the charts.
The dollar index close in New York on Monday at 80.73, and then chopped sideways in a very tight range on Tuesday, before falling off a small cliff just before the close yesterday.  The index finished at 80.54, which was down 19 basis points on the day.


The CME Daily Delivery Report was another non-event, as only 1 gold and 1 silver contract were posted for delivery within the Comex-approved depositories on Thursday.  So far this month only two gold and 106 silver contracts have been delivered in the November delivery month.  That's not a lot.
Once again there was a withdrawal from GLD.  This time it was 48,243 troy ounces.  And as of 10:05 p.m. EST yesterday evening, there were no reported changes in SLV.
The U.S. Mint had a small sales report, as they sold 239,000 silver eagles and nothing else.
Monday was a very quiet day over at the Comex-approved depositories in both gold and silver.  In gold, only 1,099 troy ounces were reported received, and nothing was shipped out.  In silver, nothing was reported received, but 121,517 troy ounces were removed.  The link to the silver "action" is here.

Bundesbank says Italian and Spanish banks still hooked on home state debt

The Bundesbank always like to spoil the party. Tucked away on page 33 if its November monthly report is a reminder that the banking systems and sovereign states of southern Europe remain stuck in a vicious circle.
Italian banks have increased their holdings of Italian public debt from €240bn to €415bn since November 2011 (+ 73pc).  Spanish banks have raised their holdings of Spanish debt €166bn to €299. (+81pc). Ditto Irish banks, up 60pc; and Portuguese banks, up 51pc.
The EU summit pledge made in June 2012 to end this dangerous and incestuous linkage has come to little.

This commentary/blog from Ambrose was posted on The Telegraph's website on Monday sometime...and this is worth reading as well...and the embedded chart is worth the trip all by itself.  My thanks to Roy Stephens once again.

PBOC Will ‘Basically’ End Normal Yuan Intervention: Zhou

China’s central bank will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading limit, Governor Zhou Xiaochuan said, without giving a time frame.

The daily range will be widened in an “orderly way” as China seeks to enhance the currency’s two-way flexibility, Zhou wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. The nation will phase out investment caps for both domestic and foreign investors, he added. A ceiling on deposit rates offered by local banks will be gradually removed as well, PBOC Deputy Governor Yi Gang wrote in the book.

“We will increase the role of market exchange rates, and the central bank will basically exit from normal foreign-exchange market intervention,” Zhou wrote. The central bank will “establish a managed floating exchange-rate system based upon market supply and demand,” he added.

This Bloomberg story, co-filed from Hong Kong and Beijing, was posted on their website yesterday morning MST...and I thank Ulrike Marx for her first contribution to today's column.

Three King World News Blogs

Insight: Wall Street uses 'merchant' workaround to cling to commodity assets

Wall Street's commodity trading giants are using a 14-year-old law to hold on to their oil storage terminals and metals warehouses a little bit longer, even as the Federal Reserve considers cracking down on such investments.
Under the so-called "merchant" authority, U.S. financial holding companies are allowed to invest their own capital in just about any type of business - so long as they do so at arm's length, for purely passive financial purposes, and for no more than 10 years. Banks have been allowed to take small equity stakes for decades, but a controversial 1999 banking law vastly expanded the scope of such investments.
Morgan Stanley gave approval to TransMontaigne LP to re-purchase a major stake in a new oil terminal in Houston, Texas late last year after the investment was restructured as a "merchant" deal that would comply with the law, according to a person familiar with the project.
The legal maneuver, which hasn't been previously reported, is likely only a temporary measure for Morgan Stanley, which has been looking at ways to spin off or sell the whole commodities business since last year. The bank's oil trading desk is too deeply intertwined with the wider TransMontaigne oil terminal and pipeline business to separate the two.
This very interesting, but longish Reuters article, co-filed from London and New York, was posted on their Internet site in the wee hours of yesterday morning EST.  I thank Ulrike Marx for her second offering in today's column.

Venezuela reported planning to pawn its gold through Goldman Sachs

The Venezuela newspaper El Nacional, the voice of that tortured country's political opposition, reports today in the story appended here that, after triumphantly repatriating its gold reserves two years ago, Venezuela has sunk so much economically under its predatory socialist regime that it will raise cash by pawning its gold through Goldman Sachs.
That gold almost surely will be delivered by Goldman Sachs to the use of the Western central bank gold price suppression scheme.
Presumably Venezuela's friend China could have bid directly for the gold and apparently didn't, maybe suggesting that China may be glad of the resulting discounting of gold on the international market, especially since the Venezuelan gold well may end up in Beijing anyway after nicely knocking prices down in its travels.
The translation, done largely by Google Translator, is far from perfect but may convey the idea well enough.
This news item was posted on the Internet site yesterday...and it's worth skimming.


At this time last week, I had estimated that the total net commercial short positions in Comex gold and silver would be down 25,000 contracts in gold and more than 3,000 contracts in silver, if the report was cut-off last Friday (and not the coming Tuesday). I should have left out the qualifier, as more than 28,000 contracts of gold and 3,200 contracts of net commercial shorts were eliminated as of Tuesday.
The fact is that many COT mavens were expecting big declines in the commercial short positions, so my point is not to pat myself on the back. My point is that more observers who study the COT reports can see that what moves prices are how the tech funds behave on the Comex. If you think about that for a moment, it’s kind of extraordinary. I agree that not everyone makes the connection that the commercials are tricking and controlling when the tech funds buy and sell, but to my mind it’s just a matter of time before they do. As backing for my assertion I would point out that a few years ago, a very small number of precious metals investors even considered the COTs. Now, many are making predictions of what the new reports may show based upon reporting week price action. That’s just a short distance away from viewing the reports as being what caused prices to move and the realization of that is price manipulation. Silver analyst Ted Butler: 16 November 2013
I don't have a thing to add to what I said earlier about yesterday's price action, or lack of it, in both silver and gold.  It was just another day off the calendar as we approach First Notice Day for the December delivery month.
All traders who hold futures or options contracts for December, have to sell, roll, or stand for delivery, and all that has to occur between now and the close of Comex trading next Thursday.  I don't expect much price action, except to the downside, between now and then.  But as I said in this space yesterday, once December goes off the board, it's a whole new ball game in my opinion, and we'll have to wait until then.
Yesterday, at the close of Comex trading, was the cut-off for Friday's Commitment of Traders Report.  Just eye-balling the weekly price action that will be in that report, it's a certainty that there will be an improvement in the Commercial net short position in silver, because a new low price was set for this move down yesterday.  However, Ted Butler says that it's too hard to tell with gold, as their was a big out-of-the-blue rally in electronic trading last Wednesday to start off this current reporting week, and it's unknown whether it was short covering or a new long position being placed that caused it.  So I'm prepared for either scenario.
Also turning in lower prices yesterday were both copper and crude oil.  The prices of these two key commodities, along with gold and silver, are also under pressure by JPMorgan et al, and both are very oversold.  The traders in these commodities also have to sell, roll, or stand for delivery before next Friday as well, and it will be interesting to see how the price of these two commodities, along with the precious metals, are allowed to "react" once we get into the new front month.  Here are the six-month charts in both.
As I've said before, if the Fed is looking for a little inflationary pressure, all they have to do is get their foot off these key commodities, and the free market will do the rest.  Will it happen?  Beats me, but it's a scenario that I've been expecting for some time.
It was very quiet in Far East and early London trading on their Wednesday.  As I hit the send button on today's column at 5:15 a.m. EST, all four precious metals are at or below their respective closes on Tuesday.  Volumes are about average, whatever that means these days, and there are a decent number of roll-overs in both gold and silver, but particularly in silver.  The dollar index is currently up about 18 basis points, gaining back everything it lost yesterday, at least for the moment.
I'm not expecting a lot of wild price action during the New York session today, but it wouldn't surprise me if it turns out differently, nor should it surprise you.
See you tomorrow.