Trends In Gold 2: The Goldman Strikes Back

Includes: GDX, GDXJ, GLD
by: Han Jun Low

Gold has endured bashing unending to rally in spite of what its detractors have said; still we have wave after wave of financial reports downplaying its rise and it has become hard to associate its fluctuations with anything news related. I would like to make the point here that this is because gold is not tied to the news, so filled with false reasons (from high GDP that gets revised down, to low inflation that is poorly calculated, to imminent tapering that may or may not occur, to War with Syria that is likely one day and unlikely the next) and is instead tied to the trades of some very prominent Goldman employees. By linking their actions this week, fluctuations in the gold stocks and the 'coincidental' movements in the gold spot, I make the point that there is nothing natural about the precious metals' 'crashes' which remain unexplained (or explained by war with Syria being likely, and then unlikely. Or profit taking, which seems to be too easy an answer carbon-copied for every crash in gold).

There are fundamental reasons for gold, which I had mentioned countless times, that are as yet still unchanged. My astute readers mention more and more reasons for gold to add to these. One reason that everyone should take note? Goldman and JPM are long gold.

Observe the charts above; the activity that they portray appears to be what you would expect from gold miners and the spot, correct? There is a peak (a lot more apparent for the Gold Juniors (GDXJ), which happen to be a lot more illiquid and easier to manipulate via large transactions than larger miners (GDX)) and gold spot declines, followed closely by miners, right? Wrong.

When juxtaposed upon each other for easier comparison, we observe a disturbing occurrence. The green line highlights normal activity at the beginning of the week; I had included the week previous as well so that you may observe that price fluctuations are more or less correlated with the spot for that week and indeed most weeks. Something strange happened Tuesday, and this was when I had first pointed out that the miners may have been the new focus for price manipulation after realizing that spot was too stubborn. (Seems I was wrong, spot and miners were both prime targets).

Nothing happened to the spot for that Tuesday, and then the next day. Yet miners crashed on day one, stabilized for some time on day two, and then crashed again towards the end of the day. This sell-off continued into day three, where the spot magically opened lower. Indeed I had mentioned the media putting the cart before the horse, but for the gold spot to do that is completely ridiculous. Spot drives gold shares, not the other way around surely. We see that towards the end of day three the shares begin to correlate to spot again, as though a magical hand was lifted from the scene. You might ask, doesn't this look like someone is front-running the market? My answer would be that it does appear rather dubious. In fact I can think of at least one Goldman trader who had the amazing foresight to front run; I mean predict where the market was going on the very Tuesday (but this was published for the general public on Wednesday) that we observed the first crash in miners. Funny that he had recommended buying in June when Goldman was still saying sell (for 'investment insiders' of his prestigious newsletter only. Insiders, they tell you exactly what they are!).

The financial news were scrambling to find an answer for the decline in miners, making wild assumptions that have little anchored in fact. If you require further evidence of the financial news not being able to answer why this among many, many, coincidences had occurred, do check out my recent blog post. If it smells like a rat, looks like a rat and tastes like… well, it is probably a rat.

As for the Goldman's hit-man's explanation that miners had been overbought; although I would share some of that sentiment, I had not seen any reason to believe that they had been spectacularly overbought; his reasoning is therefore literally akin to having a tummy ache and selling because of that, and being completely right on that very day because his tummy is the messiah… unless of course Goldman analysts who inform the general public and affect the spot are in fact informing this gentleman as well…. I mean it's hardly inconceivable that all these analysts might have lunch breaks together and one or two things might have accidentally slipped out. No big deal, he only informs 20000 insiders who pay large 50k commissions. And then the report goes viral, accidentally affecting the market later, one day later, generating a self-fulfilling prophecy that had been based on insider information. Through all of this, Goldman is still... Long Gold. Scandalous.

That ethics section in the CFA must be stopping them from trading on material non-public information though, right? Technically the CFA would also have mentioned that their price manipulation with aluminium is also a big no-no; but they do it, get caught at it and apparently should not be prosecuted because they had admitted wrong-doing… Next time I get robbed and they catch the guy, let's release him because he admitted he was wrong and offered to return some of my stuff if I pay for his gambling losses. It isn't manipulation if there was too much of the metal, gosh darn it, we're not manipulating prices; we're ensuring the real price is shown.

The Goldman Trader makes one key assertion that I will bet against: "But sooner or later, tapering, strong US economic data and a recovery next year will prevail." We will see where he stands when that day comes, if it does indeed come. Or perhaps 'new data' would have swayed his opinion again.

I anticipate further 'volatility' as these guys switch their recommendations around every other day. Overbought becomes oversold becomes overbought becomes oversold. The guys who win are the ones who get first choice at the news they churn out; else stick to your guns and ignore these 'experts'. Gold is still good as gold.

Disclosure: I am long GG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long a diversified portfolio of gold shares