How Silver and Gold are being manipulated by Hedgers

Jim Sinclair’s Commentary

These are “managed spreads,” not spreads seeking a profit because of a change in the spread relationship.   This is the mechanism for all present market manipulations outside of high frequency trading,  which is front running legitimate bids and offers.   Front running as the goal of high frequency trading means bidding ahead of the bidder with the wish to sell what is bought right back to the legitimate bidder at a profit. It is the opposite when skinning a legitimate seller.

Dear CIGAs,

When Jim talks about spreads you have to consider who is doing the spreads and how they work them.

Spread trading by definition is having a long and short contract at the same time supposedly on the same product.   Spreads or hedges are supposed to be used to protect companies from futures price fluctuations,  like if a sudden shortage or an abundance of a product pops up.   In the futures markets, spreads are activated in a calendar format.

Hershey’s Candy is a perfect example of a legitimate hedger since they need cocoa/sugar and various other commodities to produce the products they sell.   There are other types of hedging that are now called “synthetic hedging” where I personally think the misuse is occurring.   A real hedge company should normally break even against a produced product.   If Hershey needed to purchase a large amount of Sugar and needed delayed delivery of the product,  they would enter into a long position to hedge against higher prices.   Say there is a natural disaster that destroyed the sugar crop for Hershey’s’ Co.   Prices would rise and force Hershey to pay higher prices for the product and thus would pass that onto their clients (that is if there was no real hedge).   A proper hedge would offset the loss by acquiring a profit in the commodity trade against the higher price move of the real product which would keep the costs lower on our favorite Chocolate bars (mine are Hershey Kisses J).

This is how I think the misuse of the word Hedge is being applied,  and please remember this is my opinion,  I don’t have the ability to obtain factual information because these are considered a hedgers privacy and I’m not an investigator with the ability to demand the necessary information.

Say ABC Hedge Co has 50,000 positions in a contractual spread, that means they should be short 50,000 contracts and long a different month contract but the total of 50,000 contracts combined are being held overnight.   This is how I think they move the markets with impunity yet claim they are hedging.   Say ABC Hedge Co sells all their long positions at “the market;”  this causes the price to fall and a large amount of volume pops up at that moment.   At the end of the day,  ABC Hedge Co re-enters its long contracts again but at a far lower price and will re-enter their positions slowly as to not show a jump in volume like they did on the sell order.   This is called a “sudden flush” or what we now call a “waterfall event” on the charts, http://www.jsmineset.com/wp-content/uploads/2012/10/clip_image00113.gif,  and by re-entering into the long contracts at the end of the day they can still claim to be a hedge Co.

Paul Volcker mentioned in his discussion with the British Parliamentary Commission on banking standards that this approach to a trade is not how a hedge company is supposed to act.  http://www.c-span.org/Events/Paul-Volcker-Debates-Banking-Standards-in-British-Parliament/10737435049-1/.   This really is speculation,  a hedge against price fluctuations is what the legal definition of a hedge company is supposed to be,  but these types of trades cause the market to move in a specific direction,  that’s speculation and if so titled,  should be considered manipulation (here’s an example of a hedge co. not hedging properly  http://nymag.com/news/businessfinance/bottomline/21978/).

When these 1 minute charts are posted showing a waterfall event,  this is exactly what is being done to the product shown (IE Gold/Silver),  and in my opinion there is an orchestration within the hedge funds (and Algorithm) software that gives a sell signal to all so more contracts can be activated to create the bigger moves.   Of course this is simply conjecture on my part and I have no real proof.

Even though we have been on the bad side of these so called hedgers/spreads,  there is always a comeuppance moment in a manipulation,  that changes everything,  that is the moment a recognized trade pattern no longer works in the original manner intended.   This might be happening now in Silver and Gold as we’ve seen this tremendous attempt to scare out the weaker longs,  and yet the open interest in not changing in any big way as we’ve seen in the past,  are we witnessing that comeuppance moment now?

Stay Long and Strong!!

CIGA JB Slear

Fort Wealth Trading Co LLC.
866-443-0868 Ext 104
817-717-5489
Fax: 817-764-2537
www.FortWealth.com

Don’t risk what you cannot afford to lose….

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