Gold Silver Worlds received a great question from one of its readers:
Please explain how the “gold price” can drop $15.00 to $20.00 or more, in one “millisecond”, during overnight trading in Asian or European markets. It makes no sense and can only be caused by a “computer program” somehow. It occurs repeatedly and can only be pre-planned, at least that is the only logic explanation.
There are plenty of examples of this; it occurs multiple times per week. Here are a couple of charts from the past weeks. Although these are standard Kitco charts that don’t show a millisecond timeframe it is quite clear what these charts would show when zooming in. The last of the three charts, however, is the perfect example. Interestingly, this move in the charts was erased by Kitco the same day but registered by SilverDoctors.
We reached out to one of the true experts in this matter: Dimitri Speck. He is a seasoned mathematician, the author of the best-selling book “Geheime Goldpolitik” (only in German available, the English version is being prepared) and chief financial engineer of Staedel Hanseatic. He runs SeasonalCharts.com, offering a wealth of intraday trend charts.
The short version of the answer to the above question is the following: Sharp drops are often (but not always) caused by intervention of the large bullion banks who are working closely together with the central banks. Think JP Morgan, Citigroup, Goldman Sachs, and the like. They are designed to cause stop loss selling and to demotivate other market participants. The drops are the ultimate proof of systematic market interventions. The tools used by Dimitri Speck, for instance, are the intraday averages. It appears that as of 1993, these price anomalies occurred frequently to a similar extent on specific times. Before the start of these interventions in August 1993 those statistical anomalies were simply not there.
The detailed version of the answer is to be found in an earlier interview between Gold Silver Worlds and Dimitri Speck. Entitled “Gold Price Manipulation Proven On The Intraday Charts” Dimitri Speck concludes that central banks and their affiliated bullion banks started to influence systematically the price of gold as of August 1993. His conclusion comes in particular from his intraday statistics, where he observed several anomalies. First, since 1993, the price has been falling systematically during the trading session of COMEX in NY. Another trading anomaly is that during the PM fix the price systematically tends to drop significantly.
The following chart is the result of some 16 years of recording intraday data. The sudden price drops are so sharp and systematic that it can only point to intervention. For comparison, the intraday average on the second chart (1986 – 1993, which is before the systematic interventions) shows no statistical anomalies.
In addition, we wrote about the same topic in a more recent interview with John Rubino:
Downwards suppression of gold and silver prices (“manipulation”) can be the only explanation for some strange price action in 2012 (and before). In December, for instance, huge amounts of short selling took place during the most thinly traded moments during overnight trading sessions. That is not how a market participant closes out a large futures position because all the subsequent trades are happening at a lower price. Commercial banks, together with Western central banks, actively try to depress gold and silver prices to validate the existence of their paper based, fiat based currencies. It has resulted in a controlled price rise, not an exponential one.
The interview with Dimitri Speck revealed even more insights. For instance, it appears that the manipulation in the futures market (visible in the COT reports) comes on top of the revelations on the intraday charts. The interventionists significantly increased their activities in the futures gold markets in May 2001, what is visible in the COT report. Before that, the price was more suppressed through selling and leasing of gold. As soon as the futures markets got into play, an increasing number of price shocks have appeared with an increasing intensity. Obviously those price changes were mostly drops rather than increases. It becomes clear on the following chart. As of May 2001, the “climate has changed” because of the futures market, which is clearly an anomaly. The decline in the lower part of the chart, that started at that given point in time, shows the net positioning of commercials as a share of total positions. The line is significantly lower, proving that commercials are more on the short side.
As a sidenote, Dimitri Speck adds that short positions are not the only condition for price suppression. Before 2001, similar price drops did occur. Shorts are just one of the many influencing factors. For sure they do have an effect as we saw for instance in the silver market starting 14 months before the peak of May 2nd 2011. During that period, central banks temporarily scaled down their interventions as clearly shown by the intraday charts. It led to the gigantic bull run.