Bank of Nova Scotia settled spoofing charges by the CFTC this past week. Here’s a perspective on what it means in relation to the market manipulation…
This past week, we saw that the Bank of Nova Scotia was charged by the Commodity Futures Trading Commission with multiple acts of spoofing in gold and silver futures between June 2013 and June 2016. Traders placed orders to buy or sell precious metals futures contracts with the intent to cancel the orders before execution, the CFTC said.
So, the tin-foil hat wearers are back out in full force screaming about how this market rigging has caused gold to collapse over the last seven years. Unfortunately, anyone who believes this is simply not dealing with the facts of any of the supposed “manipulation” cases. You see, believing that these manipulation cases caused the gold market to drop from is 2011 high is no different from believing that a paper cut can cause someone to bleed to death.
I have discussed my thinking on this matter before, and I think it is necessary to reiterate my perspective. Last year, Gold-Eagle reached out to me to write a section on market manipulation for their e-book on gold. Within that section, I addressed this “paper cut” argument:
The second method through which they attempt to prove wholesale manipulation is to point to evidence of small price manipulations and suggest that these “paper cuts” have caused the market to bleed to death. None of their supposed “proof” provides even a shred of clear evidence that the gold market was manipulated to drop over 40% and that the silver market was manipulated to drop over 70%.
The latest supporting “evidence” to which the manipulation theorists proudly hang their hat is the recent news about Deutsche Bank’s admission of “manipulation.” Everyone now assumes they have found the smoking gun which “caused” silver to drop by over 70%, which proves they were not wrong to be bullish all the way down. Of course, they can now “prove” that everyone was cheated out of their money due to this “manipulated” decline of 70%. Right?
Wrong. This was not the first case regarding market manipulation, nor will it likely be the last. But, what many do not point out is that the manipulation dealt with in these cases is not the “manipulation” to which all the analysts have been pointing to explain why silver lost 70% of its value when they did not see it coming.
You see, the manipulation dealt with in these cases were attempts by these banks to move the market by a very small percentage in order to make a quick buck off a very small move which they attempted to control, often during low volume periods of market action. This is what is claimed within the actual legal complaints filed against these banks, which generally provide that the banks “manipulated the bid-ask spreads of silver market instruments throughout the trading day in order to enhance their profits at the expense of the class.”
Moreover, and quite importantly, this type of small degree “manipulation” occurred whether the market was going up or going down, and such manipulation was not geared towards only dropping the market lower, as the manipulation theorists want you to believe. Please read that again. It was not claimed in these lawsuits that the manipulation had the purpose of taking the market down as you have been led to believe.
These lawsuits do not support the commonly held proposition that the market was “manipulated” to drop 70%, as in the case of silver. To claim that these small degree “manipulations” caused the market to drop 70% is complete unsupportable nonsense, and is only used as a scapegoat by those who have been very wrong about the market, but refuse to take responsibility for their decisions.
While many will undoubtedly misread my conclusions as my claiming that there is no manipulation in the market, and post comments about how wrong I am about claiming there is no manipulation at all in the market, I suggest you actually read what I have said again. And, if you still cannot come to the correct conclusions, allow me to lead you in the right direction.
I do recognize that there is “manipulation” in the market by larger market participants. But, as the cases on the matter clearly point out, these “manipulations” are of a very small degree of market movement, or, “paper cuts,” as I have referred to them above. Moreover, as the cases also present, these small degree manipulations occur in both directions. Please read that again: THESE SUPPOSED SMALL DEGREE MANIPULATIONS OCCURRED IN BOTH DIRECTIONS.
Therefore, my proposition is that such “manipulation” did not cause gold to drop by 40% and silver to drop by 70%. And, I will reiterate my proposition that proof of a “paper cut” is not what caused the market to bleed to death. Rather, we call that a market correction and not a market manipulation. Accept it.
So, as I said regarding the Deutsche Bank case, this recent case was not the first case regarding market manipulation, nor will it likely be the last. But, what many do not point out is this: the manipulation dealt with in these cases is not the gross manipulation to which all the analysts have been pointing to explain why silver lost 70% of its value when they did not see it coming.
Remember, a paper cut did not cause this market to bleed to death, no matter what anyone wants to believe. To suggest otherwise is simply dishonest.
Last week, I outlined my expectation on the gold market through the SPDR Gold Trust (NYSEARCA: GLD) structure I have been tracking:
Yet, we still have a pattern that can count as an initial 5 waves off the recent lows. But, it is the wave degree higher that will either confirm or invalidate whether a bottom has been struck in the market. My suspicion, based upon the lack of a standard pattern off the low, is that we are stuck within a corrective rally, which will lead to a lower low once completed. And, based upon the current structure, we have resistance overhead between $116.25 and $118, which will likely turn us down deeper into our target box below. But, based upon the current structure, it does look as though resistance will be tested within the next week or two.
As I write this, it would seem that GLD is in the midst of the rally I expected which would test the overhead resistance. Again, our main resistance is 116.25-118. Based upon the current structure, I am expecting resistance to hold, and set us up for one more decline to the final lows in this pullback off the April highs. Should the market provide more strength than I currently expect, then I will clearly be open to the lows having been struck already.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.