Confessions of Gold Analyst: Gold Selloffs And Human Nature
Avi brings up some great points here regarding manipulation that I completely agree with. Far too often investors use the excuse of manipulation as the reason why a certain asset moved in a given. I feel this is a way of justifying an incorrect assumption or unexpected move. We will be having Avi on later this week to further discuss this article.
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As human beings, our egos make us believe we are in control of the world around us. We like to believe that we can use reason to make wise and correct investment decisions. We like to make sense of everything we do. But, unfortunately, that is not the case when it comes to trading and investing in financial markets, especially precious metals.
I know it is hard to believe, but human decision making is often emotional, has a distinct general pattern, and is not as “reasonable” or as “logical” as many of you believe. And turns within these patterns are seen at various Fibonacci ratios. In fact, studies have been performed throughout the last 20 years which substantiate this perspective.
The problem shared by most investors and traders is that our human egos will not allow us to believe that there is a greater power that is engrained within the human brain that controls our decision making, as well as market movements. But, it is a scientific fact that humans are hard wired for herding in their basal ganglia and limbic system within their brain, which is a biological response they share with all animals. Yet, most investors are unable to accept that scientific truth – that is, most unsuccessful investors.
Rather, we believe we are in control of our surroundings. We have a need to feel that much of that with which we interact can come under our control. We also have a need to feel as though we control most aspects of our lives, and many even attempt to control many aspects of the lives with which we interact as well. Yes, we, as a race, are truly control freaks, with very little actually being within our control.
But, why do we have that need to feel as though we are in control? Some have suggested that that sense of control leads to the certainty that we all feel we need in life. But, for those that have lived long enough to be mature about this perspective, you have already come to the realization that one cannot control life. In fact, one of the most disturbing things about having a terminal illness, as those who unfortunately suffer from such afflictions will tell you, is the feeling of powerlessness, of being unable to do anything about it. Being unable to control the illness and knowing that others cannot help can be even more painful than impending death.
Yet, there is an innate desire to impute a certain amount of control to “surprise” events so that one can have a better understanding of that which was not in their control. And, yes, imputing an understanding of an event is another manner in which we attempt to control our surroundings. Rationalization is another form of control.
So, what the heck does this have to do with metals? Well, what if market movement, on the larger scale, was something that was not within the conscious control of human beings? What if there was something imbedded deep within the human psyche, which, when enacted upon en masse, directs all societal movements in a relatively uniform (herding) manner beyond the control of any individuals?
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.”
Now let me ask you a question. If one sees a “surprise” sell off in a market, how do they deal with it? Well, traditionally, many have looked for a “reason” or “rationalization.” When no clear rationalization is at hand, most move to the theory that the price was manipulated. But, the problem with much of the manipulation theory today is that there could be much more reasonable perspectives as to why selloffs have occurred, yet they are now ignored, as manipulation “must” rule the day by a certain segment of our metals market. They will never hear any other rationalization, since they are now locked into the manipulation theory as the main reason they were unable to foresee this 4 year selloff. I discussed this perspective last week.
So, let’s look at the last sell off in gold. It occurred right at the open of the Chinese markets and there was a large sale of gold right at the open. So, as expected, the obvious response was that “the manipulators were at it again.”
But, what most seem to have forgotten was that there was a rather large decline in the Chinese stock market right before we saw this sale of gold early one morning. In truth, in this case, the timing of the sale more likely occurred as a result of a forced gold liquidation to satisfy margin calls caused by the significant declines seen in the Chinese market.
Yet, how many have taken the opportunity to blame this further decline in gold on manipulation? Unfortunately, too many. Most did not foresee this decline coming since they were looking in the wrong place. Yet, we were setting up our short trades a month before this decline took hold, as you can see by the blue box regions (in the attached chart) where we set up two tranches of short trades. And, yes, we were short for the heart of that decline. Did we know the market was going to be manipulated again?
The answer is quite simple for those that are willing to accept the truth. The big market moves are not caused by manipulation, no matter how many have tried to force feed this perspective to you. This market is driven by sentiment. And, sentiment patterns suggested the market was setting up for a strong decline, and that is why we were short from much higher levels back in May and June.
Yet. again, fundamentals failed to predict this recent gold decline. But, fundamentalists that could not foresee this recent decline continue to “sell” you on their contrived manipulation theories when they have no other reason to explain it. But, don’t let their shortcomings “manipulate” you into their misdirected perspectives. This decline was not caused by manipulation, and it was quite foreseeable for those who knew where to look.
In conclusion, one must come to the recognition that much of life is beyond our control. And, that includes our financial markets. They are not under anyone’s control. Rather, they are directed by the sentiment of the larger public, and large market moves are not controlled by any specific group. If such market moves were controlled, then there is no way we would have been able to consistently identify the larger moves before they occurred unless we part of the controlling group, which we clearly are not. And, in truth, almost anyone can identify these market turns, if they know where to look and are able to move beyond the common perception of what moves markets.
If you want to learn where to look, feel free to join the thousands of traders and professional money managers in our Trading Room at Elliottwavetrader.net with a 2 week free trial.
See Avi’s chart illustrating the wave counts on the GLD at https://www.elliottwavetrader.net/scharts/Chart-on-GLD-daily-20150830805.html
By Avi Gilburt
ElliottWaveTrader.net
Well said Avi. That was a great article.
This article makes some interesting, and likely valid, points; but to effectively assert that the gold market is not manipulated is, in my view, preposterous. Whether it’s the 99-to-1 leverage, the absurd dumps of paper contracts, or the plethora of *admissions* (e.g., collected by the “crazies” at GATA), the only way you can logically conclude “no manipulation” is by wearing the same kind of blinders Avi claims to point to.
That is not to say the recent gold-smash was manipulation… though that seems at least as likely (to this commenter) as the “Chinese liquidity crunch” theory.
I read that article and was confused.
First there is a difference between control and understanding or the logic of a behavior.
I have not wet my bed in 70 years. Because I control the action of my bladder.
I may not know exactly what muscle to use to do that, but that knowledge is hard-wired into my brain.
I know I do not control the stockmarket or the gold market.
I try to explain what I expect it to do, but if it moves in an unexpected direction I always assume lack of knowledge, NOT manipulation.
I never automatically assume something I hear from “experts” as being correct unless it agrees with all my known facts.
Liikewise for the printed word.
Much of the time I might “accept” an explanation, because I really don’t have strong feelings about whether the explanation is correct or not.
I do not wet my bed, because I have the power to control to wetness of my bed. It is to my ADVANTAGE not to sleep in a wet bed.
Now suppose as a growing nation, I wanted to acquire gold.
It is to my ADVANTAGE to pay as little as possible.
If it were possible for me to control the gold market price with minimal cost, WHY DO YOU BELIEVE I WOULD NOT CONTROL THE GOLD PRICE.
To not believe in purposeful manipulation is STUPIDITY.
The popular term might nowadays be: you are a denier!
Gold is trading at ten times the price of the HUI. When miners crashed in 2008, it peaked at less than fives times:
http://stockcharts.com/h-sc/ui?s=%24GOLD%3A%24HUI&p=M&yr=10&mn=0&dy=0&id=p31304590947
INTERESTING OBSERVATION
Al, I think you’ll agree that there are lots of reasons to expect the miners to FINALLY outperform gold in a big way. Not the least of which is the fact that an ounce of gold is now worth 120% more oil than just 14 months ago and that AISC have been coming down for the last two years in many cases.
MEMBERSHIP HAS IT’S PRICE………….BOOKS TAPES AND NEWSLETTERS……..LOL
http://sgtreport.com/2015/09/bill-holter-on-crisis-mode-in-the-vix-etfs/
If the zerohedge article’s numbers are correct, note the ILLEGAL NAKED SHORTING.
(One of the reasons I watch Reg SHO lists)
Note thearticle mentions PPT.
you believe Jon, the floor trader, knows more than the Zerohedge guys?
They are not always correct, but they are damned smart.
agree…………
Let me ask the group here at KER a question, ok lets say every market, every stock is manipulated by the evil???? every day!
So what are you going to do starting Wed to protect yourself from the evil PPT?
And don’t say the obvious goldbug answer buy physical gold and silver even though its manipulated against you ever making the to da moon profits you all dream of, but seriously lets say every market is manipulated, so what, what do you do to make money!
oh and don’t say you’ll continue to WHINE about it, you all have been doing that for years!!!!!!!!!
I’m retired, I don’t need to make money.
I live off money I saved and invested when I was working. For the most part, by investing wisely, I have lived off my investments for nearly 30 years without much reduction of capital during that period. Good investment requires good knowledge or great luck. I prefer to rely on knowledge, not luck.
O god,give us the serenity to accept what cannot be changed,
The courage to change what can be changed,
and the wisdom to know the difference.
I am, but a mere mortal, unable to alter the price of gold except in some minor decimal place. I know that. I accept that. I base my decisions on that knowledge.
I don’t trade gold. I don’t need to get richer. I have, I hope, more money than I will ever spend. I have given away more than I have saved for myself over the years. But….
If you consider money as a currency representing work, I now wish to give to my heirs as much of the value of that labor as possible.
I realize that there will come some years in which my mental ability may degrade.
I realize it is possible that fiat money itself may have less buying power as time passes. That is why I have an interest in precious metals.
My thoughts exactly, Professor.
How do I protect myself from the PPT?
Knowing they exist and how they might affect the market is surely better than ignorance.
Knowing of their existence implies unexpected rises in the market are possible.
Logic thus suggests one should not be overly greedy by gearing to -3x a short of the market, Gain wealth slowly at lower risk than a fast pace with dangerous risk, in other words, Probably not what you want to hear.
Probably not what Jon wanted to hear. (I got the impression he wanted some inside information of the illegal tip kind, but I could be wrong.)
Yes it is.
gain wealth slowly at lower risk……..ditto
I play the market as I see it with no other considerations
I would not characterize the PPT as evil. Their purpose is to prevent chaos.
Unlike a person in power who might believe that a Marxist economy was best for the US, who ignored the Constitution, and sought to use his power to irrevocably change the country. Such a person, depending on my best judgement of their actual intent, I could characterize as evil.
I like to know if Avi was bearish on gold in 2010 and 2011?
Lawrence,
Avi called the top by a few days in 2011.
And he was bearish.
Hope this helps, fwiw.
Best to you,
LPG
Thanks. If he kept calling, it means nothing. I hope he was bullish from 2009 and turned bearish before the peak. There was a huge bull run from 2009-2011.
I know people who was bearish since gold in the 400-500 and missed the entire bull run.
See how dangerous a lack of knowledge can be?
Always,ask, probe, challenge, re-think your position, re-evaluate…..
Lawrence,
I think a few min spent searching on the internet will help you understand where Avi stood/when etc.
You will be able to make up your mind w. re: to what to think based on what you’ll read/find from your search.
GL to all investing/trading.
LPG
Thanks for the advice.
sixty-one
here we come.
and USD to 1.60
but maybe not again in this lifetime.
That’s just an opinion based on what appears to be the willingness to use the “rod of god” to create craters at will, wherever anyone dares threaten the almighty dollar.
It will not die gracefully.
“Bank of Canada will cut interest rates again on Sept. 9, National Bank predicts”
“The odds of a September rate cut have risen to 31 percent from 18 percent a week ago based on trading in swaps markets. Signs of global economic turmoil are being seen from falling stock market and crude oil prices to the weakest Canadian dollar since 2004.”
Lower loonies should be good to canadian economy. I”d rather have a job than buy a lot of things. After we passed the difficult period our industry in intact, hopefully.
All things considered, I really doubt we’re going to see 61. I think the following modified Schiff fork is going to hold on a closing basis…
http://stockcharts.com/h-sc/ui?s=%24CDW&p=M&yr=15&mn=0&dy=22&id=p69513735512&a=387462925
…and I might be wrong!
The buck is not looking impressive considering the action in stocks.
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=1&mn=4&dy=0&id=p18456246531&a=382785390&listNum=1
Matthew,
Your charts and comments ( statistics and percentages of asset classes ) are top notch my friend!! And I agree with this chart you just posted. Thanks for you being, You!
Thank you Chartster and you’re welcome.
Gold backed off as yen got smacked at the Japan open, TNX not helping golds advance either….well they didn’t take out resistance in the pm’s sector while the US equities were tanking (run to safety?) and they aren’t buying with the US equities heading higher?
Would like to see Yen above 84.25, Gold $1169, Hui 133, Silver the big one to watch above $15.50 my charts are telling me to hold no positions short or long, maybe Fri NFP will change that into next week? just long OIL into US storage data
CDN$ there is an air pocket if recent low of 74.89 falls, down to 71.42 if oil is going to be $20 as Marty suggests the possibility is there (over supply from technology) in the next couple years the loonie will be sub 70 for sure!
Gold is just beginning its fall vs silver:
http://stockcharts.com/h-sc/ui?s=GLD:SLV&p=D&yr=1&mn=0&dy=0&id=p12501911297&a=408685539&listNum=1
lots of gaps need to be filled from the Aug run higher, I hate gaps!
Nature of using gold to hammer silver is obvious. For every silver run up, gold is hit even it does not participate. I have been watching those events and confirmed everytime.
Last night the BOJ intervened or as those here like to suggest PPT, manipulated Yens value, the chart to watch going forward as its been for the last 8 years since summer 2007 is yen as gold and yen trade together, anyone really think Japan is going to let the yen strengthen while China devalues the Yuan, think again, much lower yen = much lower gold….notice the 2011 top at some point the two will no longer trade in lock step perhaps from loss of faith in governments around the world as M.A. suggests breaking gold away from the yen trade
http://stockcharts.com/h-sc/ui?s=%24XJY&p=D&yr=17&mn=9&dy=0&id=p92177470096&listNum=1&a=422415362
sold uwti on inventory data taking 40% gain off table, thank the market gods for the 50ma hit @ $48.50 no position in oil till after long weekend, crazy action!
What timing, triple hit on bullish oil outlook, Iran, China, US inventory builds!!
Yes it is hard to be bullish at the bottom because it looks bleak. It could go lower. It happens in any market.
One thing, when we know the events as retail investors, it is too late. We are the last one to know.
disagree Lawrence, with the internet today we retail investors see the live data as soon as everyone else, I don’t chase daily wiggles but trends that anyone can do you just have to know what trend a data release could create
“TRENDS”………….long and short ones……………..
Over 50% of illegal immigrants receive welfare.
Polls indicate over two-thirds vote Democrat.
The US is irrevocably being changed to a third-world country…….as you watch.
ditto………gone to far to pull it back………jmho The congress is making rules to appease themselves on every turn.
they have even changed the number of votes it takes to approve different bills ….
heard that one on PBS this morning……….
Corker is on the hot seat for the IRAN VOTE……….
mcalvany commentary:
http://mcalvanyweeklycommentary.com/wp-content/uploads/ica2015-0902.mp3
Friedman from Stratfor on long term views
Is this the same Friedman, who wrote “THE WORLD IS FLAT”….in1995?
IF so.,,,HE was spot on with his prediction in 1995
Thomas Friedman…..wrote the book……this is George……resolved.
If you missed Jay Taylor yesterday:
http://jaytaylormedia.com/audio/
I disagree with Jay Taylor to some extent. When he says things like “gold will become a moonshot”, it is true that in the future, measured in dollars, gold will be much higher. However, wass gold worth 10 quadrillion Zimbabwe Dollars or 1 billion rentenmarks a moonshot?
Yes, there may be a time in the future when an ounce of gold will be worth US$50,000, but that will be a reflection of the “worth” of a US dollar, not of an ounce of gold. At such a time, I suspect it will take several ounces of gold and hundreds of thousands of US dollars to be a suit of clothes. 2 cents of honest opinion.
To buy a suit… Sorry, folks.
“But, what most seem to have forgotten was that there was a rather large decline in the Chinese stock market right before we saw this sale of gold early one morning”
Nope, by the time gold was attacked on that Sunday night the Chinese market had already rallied 20%. No one was getting margin calls and hadn’t been for 2 1/2 weeks.
Pure and simple. Positon limits are not being enforced in the metals market, and until they are manipuation is just a fact of life and one more land mine that has to be avoided in this sector.
The good news is that the manipulation is going to make the next bull run even that much larger because gold has been prevented from moving in it’s natural direction for so long.
Gold has held up much better for the past four years than most commodities, Gary. If anything the PTB have been manipulating it up to project inflation. It is NOT being suppressed by a long country mile. Not in the way you think anyway. That is just silly talk. Look at the charts and compare the performance of any commodity versus gold and you will have to come back and apologize for that statement of yours.
I think every guru who has a paid subscription service uses the manipulation cry as to every trade that doesn’t go their way, lol
I recall Gary was uber uber bullish gold in 2011 and 2012. He put out some crazy price projections. Oops.
Avi is obviously a successful trader with years of experience behind the above article, I have a friend who is a successful trader for almost 40 years, he would not even know of this site or any web-site that has anything to do with what he trades he uses the chart to determine his positions in everything, I wish I was that disciplined, almost there but not yet.
Every reader here should print out Avi’s article and read it daily!
Almost every successful gold and silver guru during the bull market years look like stars but the last 4 years has reduced them to nothing but buy side salesmen continuing to call the bottom and never ever making money from shorting the pm’s bear market. they are not traders they are promoters!
Look at Peter Grandich, Wall St Whiz kid, Pete called every weekly move in the uranium sector during its bull years, then he couldn’t bring himself or his readers to hit a bid and never look back, he had an emotional breakdown, how sad!
Excellent article!