Market Manipulation and a Dark Secret Finally Revealed

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
April 17, 2016

The latest Deutsche Bank case has the metals market buzzing about manipulation again.  Unfortunately, most misinterpret the case and the market ramifications.  While I know I am fighting the “common think” in this market, I am unable to stand quietly aside and accept dishonest perspectives being presented as presumptive truths.

Market History

Back in 2011, very few saw the top coming in the metals markets.  While our analysts at Elliottwavetrader.net were warning investors to exit the market, and for aggressive traders to begin shorting, most analysts were still looking higher while the metals were topping.  Very few expected the action seen in the metals market during 2011-2015.  Most were advising investors to just keep buying, since they “knew” the market was certainly going much higher. 

But, when the markets began the correction we called for in 2011, those that were still looking higher became frantic.  They had investors following their advice who were getting more and more angry with them as the metals began to drop hard.  Surely, these analysts could not have been wrong.  I mean, how could the metals drop rather than continue to rally?  This was clearly not supposed to happen.  There must be another reason, as they simply could not admit to those following their advice that they were simply wrong and were caught flat footed at the market highs.

For decades, there have been murmurings about the metals being manipulated.  And, as the metals began to drop precipitously, this was an easy scapegoat for the analysts who were caught looking higher at the all-time highs.  It was an easy out for them to tell their followers that they were really not wrong, since it was the big-bad-banks and the evil central banks who colluded to cheat everyone out of their money. 

And, the lower the metals dropped, the more wrong these analysts proved themselves to be.  In fact, and almost comically, most did not even begin to suggest that the metals could head lower until we were approaching the recent lows, when they all became certain that gold was going to drop below $1,000.  In retrospect, they were the best contrarian indicators the market had to offer.  And, their excuse was “manipulation,” but never their own obvious failures. 

A Little Background About Me

For those that do not know my background, let me begin by explaining that I am a lawyer and accountant by training.  I was on the Dean’s List in law school and graduated with honors within the top 7% of my class.  I passed both the Bar and the Certified Public Accounting examinations.  I was a partner and National Director at a major firm for many years before I retired and followed my heart into the financial markets.  Personally, I am divorced from my first wife, and am a widower from my second, as well as a father of four children.  Clearly, I have amassed a significant amount of education and life experience.

Moreover, when I began my foray into the financial markets decades ago, I did a lot of research into many methods of fundamental and technical analysis, as well as market sentiment.  After all the research, analysis and experience I have in life and the financial markets, I can confidently say that I do not approach markets (or anything) foolishly, and have a significant amount of respect for the market and the world as a whole. 

So, when I tell you that I do not buy into the predominant theories of manipulation supposedly causing a 70% decline in silver, that decision was not arrived at haphazardly, but through much research, analysis, and independent thought.

Yes, you heard me say “independent thought.”  You see, there is very little independent thought provided in the analysis you read about markets.  Most of what is written are regurgitation by one analyst after another, mostly based upon unsupportable supposition and “group think” which follows the herd.  This is why I have always sought the honest perspective in markets rather than accepting the pervasive “group think.” In fact, this perspective has resulted in many viewing our group as one of the most accurate prognosticators of the metals market.

Market Manipulation

One such instance of “group think” is that manipulation caused gold to drop from $1921 to $1045, and silver from $50 to $14. 

The latest supporting “evidence” to which the manipulation theorists proudly hang their hat is the recent news about Deutsch Bank’s admission to “manipulation.”  And, everyone assumes they have found the smoking gun which “caused” silver to drop by 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%.  Makes sense, 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. 

Investors and Analysts Refuse to Take Responsibility 

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.

The best example I can give you would be as follows.  Suppose you were recklessly driving a speeding car while intoxicated.  G-d forbid, you hit a pedestrian crossing the road, and the pedestrian bled to death from his injuries.  Your lawyer then had the pedestrians body examined, and found some paper cuts on his fingers.  Your lawyer then tries to argue that it was the paper cuts which caused this person to bleed to death, rather than your hitting this pedestrian while speeding and recklessly driving during an episode of intoxication.

Do you think this argument would lead to your acquittal from killing this pedestrian?  I think we all know you would be convicted of manslaughter for your reckless actions – and probably in record time -  as no reasonable person would believe that the paper cuts actually caused this individual's death. 

Yet, this is the predominant perspective taken in our financial markets because people do not like to take responsibility for their reckless actions.  Just because there is evidence of paper cuts in the market does not mean that it was the cause of the market (or your account) bleeding to death.

In 2011, the markets were clearly within a parabolic phase, with some days seeing gold rising by over $50 a day.  Anyone who was bullish at the time, and continued to buy all the way up, became “intoxicated” from the daily parabolic moves in the metals.  They assumed the party would unabatedly continue, so the crowd continued to push it higher and higher, causing greater public intoxication.  But, no one saw the pedestrian in the road – er, I mean the market top just ahead, which would trigger a large correction.  And, once the top was struck, their investment accounts began to bleed to death during the ensuing correction.

When the hangover caused by the public intoxication wore off, rather than focus upon their recklessness, investors began to focus upon the “paper cuts” caused by the “manipulators.” GATA and the analyst community acted as the lawyers trying to convince the rest of the market that it was not their reckless action which led to the inevitable market correction (and investment accounts bleeding).  Rather, they have been trying to convince you that it was the “paper cut” which caused the 70% drop in silver.  And, instead of taking responsibility for their reckless actions, investors took the position that they “must acquit,” since they began to believe “the glove did not fit.”

If your purpose for being in the metals market is to make money and increase your net worth, then let’s begin to be honest with ourselves rather than continue to wear blinders. Let’s begin to be honest with ourselves rather than try to convince ourselves that, as Jackie Mason says, “it’s because of those sons of bitches” that we lost money.  A paper cut did not cause your account to bleed to death.  Greedy and reckless actions did. 

And, trying to claim that a standard market correction was caused by these paper cuts is simply ignoring the way markets react in due course.  It’s about time people begin to take responsibility for not recognizing a market correction, rather than trying to shift the blame to an invisible hand.

A Dark Secret Finally Revealed

Lastly, there are several points to ponder for those that believe the market was manipulated to drop 45% in gold and 70% in silver. 

The first question I always ask is if these analysts believed so strongly that the markets were being manipulated to drop so significantly, why did they continually suggest you buy into a manipulated market week after week while it continued to drop for years?  Would not the prudent course of action be to suggest that investors take their money out of a manipulated market?  I know I always suggest to those that read my analysis to head to the sidelines when we approach a period of high risk.  One must wonder why they did not do the same?

Instead, they continued to call bottom after bottom, week after week, suggesting that you buy every week, and claiming that the only reason they were wrong was because of the “manipulation” continually driving the market lower and lower for years.  If they truly believed the market was manipulated, should they not have waited for evidence that the market was no longer manipulated before calling a bottom and suggesting for you to re-enter the market?  Yet, that is clearly not what we experienced during the last 4 years and to believe otherwise is simply as dishonest as their claims that they have been wrong because of manipulation. 

The second point to ponder is, if the market is manipulated, then there should be no one who has been able to accurately predict manipulated market movements.  If so, then how were we – at Elliottwavetrader.net - able to publically call for the gold market to top within $6 of where it did in 2011?   Moreover, how did we know to begin buying back into the market at the end of 2015 and early 2016, for which I had a very large “BUY BUY BUY” box on my charts?  How would it even be possible for anyone to accurately identify where a truly manipulated market would turn at both the highs and lows, as the only one privy to such information is the manipulator?

I will tell you the answer, but it uncovers a deep, dark, but true, secret underlying these metals markets, which will reconcile all the inconsistencies I have noted above, the ramifications for which can affect investors worldwide to the point it can positively affect your investment accounts on a consistent basis -  so please don’t let it get out: 

The “manipulators” follow our analysis!  

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].


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