The king of high frequency trading, Nanex’s Eric Hunsader, has been on a crusade lately to expose the problematic and illegal manipulative side of HFT/algo-driven trading. No where on earth is the manipulation of any market more blatant and in-your-face illegal than in the paper gold market. Yesterday morning Hunsader tweeted out this, after the gold was taken down hard in the paper gold market:
Gold was smashed at exactly 8:20 a.m. EST when the gold pit at the Comex opened. The initial hit involved the dumping of 2,748 contracts – or 274,800 ozs of paper gold – in the first minute of floor trading. The Comex is only reporting 162,221 ozs of “registered,” deliverable gold. Hmmm…From 8:00 a.m. – 9:00 a.m, 29,136 contracts traded, representing 2.9 million ozs of gold traded, most of it in the first 40 minutes after the floor trade.
Without a doubt, the blatant nature of the manipulation reflects the degree of desperation felt by the Fed and the bullion banks to keep a lid on the price of gold given that the Fed is unable to raise interest rates without crashing the system.
The blatant manipulation of gold further reflects a bigger problem facing the western Central Banks and bullion banks: the growing scarcity of gold available to deliver into entitled buyers like India and China. The Shanghai Gold Exchange withdrawals continued at record levels in September and even Bloomberg is reporting this now: LINK.
And the big festival seasons are about to begin in India and the Middle East: LINK
One last point that I believe is perhaps the strongest indicator that the wholesale gold bullion market is as tight as it’s ever been. “Conflict gold” is now thought to be part of the gold which is flowing into big buyers like India. “Conflict gold” is gold bars in dore form that are produced in places like Ghana by mines using child-labor or by mines controlled by contra-Government rebel groups in the Congo.
Allegations have surfaced that this conflict gold showing up at refiners in India. Although the only western gold market writer I’m aware of who is tracking the dore bar market in India is John Brimelow (John Brimelow’s “Gold Jottings”), India has been shifting a measurable portion of its imports to dore bars. Dore bars are 80-85% purity bars that are processed by mines and sent to refiners for further processing.
The reason the Indian demand-mix has shifted more toward dore bars, I believe, is two-fold: 1) the dore bars are subjected to a significantly lower import duty than LBMA-quality bars and 2) it reflects the inability of the global market to produce enough deliverable LMBA-quality bars to meet Indian demand.
The shift in demand toward dore bars is one of the primary reasons that the mainstream media like Reuters, the UBS metals group and Dennis Gartman are reporting that gold demand in India is weak right now. They only track the ex-duty premiums of the LBMA-quality bar imports into India and completely ignore – or, more likely, are unaware of – the booming dore bar imports. Currently the ex-duty import premiums are negative, reflecting weak demand for those bars. However, the premiums paid for dore bars reflect booming demand for those bars.
I guess it’s only a matter of time before we get another avalanche of anti-gold media propaganda and thoroughly misleading and factually unsubstantiated garbage analysis from bullion bank apologists like the Perth Mint and Jeffrey Christian.