Gold And Silver: Have You Felt “Manipulated?”

The one thing that the metals have done best for the last 3 years is keeping most investors on the wrong side of the trade.  After over three years of this frustrating market action, I am sure those bullishly inclined are worn to the nub. I am also sure you have completely run out of patience.  I would not be surprised if you have even yelled at your charts, screen, or investment account at one time or another due to the market action in the metals over the last three years.

But, allow me to provide at least some comforting words in telling you that this is completely normal.  The job of this corrective decline over the last 3 years is to frustrate you.  The job of this corrective decline is to make you want to give up on metals.  The job of this corrective decline is to ultimately shake you out of the market.  But, as we are getting closer and closer to the end of the insanity, I implore you to stay the course, even though there is likely still more pain to come for the metals perma-bulls. Now is not the time to give up as we approach the end.

However, one of the more common themes I have heard over the last three years is that the metals market is manipulated. Yes, those SOB’s have swindled us out of our money.  Of course, everyone “knows” that the metals should be going up, rather than down, so the only reason that they are going down MUST be because someone is manipulating them such.

For those of you that have read me for years, I am sure you can sense the sarcasm in my tone. 

About 10 months ago, I received the following comment to a metals article I had written for KITCO:

It appears that AVI GILBURT receives insider information that accurately predicts metals prices. It also appears that he then uses this knowledge to fabricate an aura of "Truth" around his fundamental analysis, as to why metals are trending the way they are.  His analysis always arrives at the conclusion that central banker coordinated price manipulation is impossible, despite that the central banks are the world's largest holders of metals and that they coordinate their activities via the BIS. It appears that GILBURT is a paid-for change agent. Use him to predict metals prices, but ignore his analysis, which exists to brainwash you.

So, it seems that I am a member of this “manipulation cartel.”  I am here to “brainwash you.” However, it was noted that you should use me to predict metals pricing due to my history of accuracy.

Now, after I stopped laughing, I sat back and thought about what this commenter was really saying.  He was so certain that the ONLY way one can be very accurate in discerning micro and macro movements in metals is if they are a member of the “manipulation cartel.”  It was inconceivable to him to think that there is a methodology, rather than some insider knowledge, which can generate highly accurate predictions when it comes to metals.

Along those lines, it is my firm belief that the “manipulation” theories have been propagated by analysts who have been on the wrong side of the metals market for the last 3 years.  Think about it.  Did any of them claim the market was manipulated when it went to $1,900?  No. They were all too intoxicated with euphoric expectations of imminently eclipsing the $2,000 mark that they failed to see the impending top.  They continually reiterated the same fundamental drivel, which is the exact same fundamental drivel which is paraded before you today, as to why the metals should be going only higher. 

However, it seems the market has not cared, as it has only been going down for over three years despite the fundamental evidence suggesting the contrary.

So, rather than admit they were wrong, or worse, that their methods in the metals market failed miserably, they claim the market is “manipulated.” Well, it sure has made many of their followers feel “smarter” about holding on to their metals positions without hedges for the last 3 years of significant drawdown.  I mean, they “know” they are right and the market is wrong, but it is someone else’s fault that they lost money.  Yea . . . and the dog ate my homework.

Folks, if you want to think you are right, and that it is someone else’s fault that you lost money, that is your prerogative.  I would much rather be making money on the correct side of the market while everyone tells me that my methods are wrong.  I don’t want to be that 80 year old person we all know that was talked out of buying that building for $10 back in the 40’s (which is now worth $10,000,000), yet still blaming those that talked him out of the purchase. 

Do you want to be that person?  I would rather be honest about the market and my perspective when it comes to investing.

So, let’s talk some honesty.  Do you know of a market on the face of this earth that only goes up? Don’t all major markets move up and then correct before continuing to move in the prior direction? Yet, these “manipulation theorists” want you to buy into a few facts to which they point to claim that a correction is due to “manipulation.” Rather, the more reasonable and less paranoid perspective is that corrections are simply the part of the natural course of financial markets.

Now, I will admit that there could be certain attempts at moving the smaller markets at smaller degrees by some dominant players in those markets.  However, I do not believe it is anywhere near the extent to which these “manipulation theorists” would have you believe, and certainly not to the extent which would cause silver to lose 70% of its value from its 2011 highs.  Rather, I simply think they have been using it as a cloud of smoke to obfuscate how badly they have fared in this market the last 3 years.  

It also leaves me wondering one thing: If these “manipulation theorists” believe that someone is trying to manipulate them out of their money, why do they bother engaging in this market? If you knew a store was cheating or overcharging, would you ever go back to that store?

So, my suggestion to all metals investors is to please take responsibility for your investments. Stewing at your desk about some "bankster" manipulating you out of your money will never help you make money. Try to understand that markets naturally enter phases of progression and regression, and that is just the way all markets work.

This mass form of progression and regression seems to be hard wired deep within the psyche all living creatures. This is what we have come to know today as the driver of the "herding principle." And the movements within these herds seem to turn at Fibonacci ratios, which is the reason for my accuracy within the metals market, and not because I am tied into the “cartel,” as the commenter above incorrectly suggested.

Humans are hard wired for herding within their basal ganglia and limbic system within their brain, which is a biological response they share with all animals. In fact, in a study performed by Dr. Joseph Ledoux, a psychologist at the Center for Neural Science at NYU, he noted that emotion and the reaction caused by such emotion occur independent and prior to, the ability of the brain to reason.

In a paper entitled "Large Financial Crashes," published in 1997 in Physica A., a publication of the European Physical Society, the authors, within their conclusions, present a nice summation for the overall herding phenomena within financial markets:

Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an "emergent" behavior not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behavior at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.

In fact, one commenter to one of my articles on Seeking Alpha made the following astute point regarding how news affects these subconscious herding trends:

Compare the market to a stream of ants marching by in, generally, a single direction. Run a stick across their path and there will be some momentary confusion and reaction to the direct stimuli but very soon afterwards the original parade of ants continues and the stimulus is forgotten.

So, based upon much research, it does seem that the market may be considered to be on a path that is determined by a mass form of herding that is given direction by social mood. It sure does explain the oft asked question of why markets go up when bad news is announced or vice versa, or why the metals have seemingly ignored positive fundamentals for years. It also takes out all the guess work in attempting to discern the next "news event" that may move markets, as that method has failed metals investors miserably for the last 3 years.

It also means that any attempted or perceived "manipulation" in the metals market does not really have the affect so many want to believe it does.  Rather, it is proffered to make some analysts and their followers feel better about their losses.  Instead, if you really want to be on the right side of this market, it is time for you to honest about your perspective and your investment.  Yet, I know many will remain unconvinced.  But, just remember, the definition of insanity is doing the same thing over and over, yet expecting a different result each time.  So, ask yourself, even if you believe that you are being manipulated, how has that “important knowledge” helped you make money?

Chart on GLD (daily) for Sunday February 8th 2015

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Courtesy of ElliottWaveTrader.net