GATA Is At It Again
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
A new phrase has been added to our lexicon of late, and that is what has become known as "fake news." This new phraseology can be aptly applied to that which is presented by our old friends at the GATA (Gold Anti-Trust Action) committee.
GATA has been trying to convince all those who are willing to listen that it is not its fault that the metals market dropped from 2011 to 2015 (where silver lost 75% of its value). Rather than admitting that it was not able to foresee a standard market correction -- which I warned about before it happened -- it has been focusing on that big bad scapegoat named "manipulation." And, it takes bits and pieces of what people say in order to "prove" its point.
But, when one delves into its supposed proofs a little more deeply, you realize that they are nothing more than quotes taken out of context. This is common wholesale market dishonesty which I abhor. And, unfortunately, many have been foolish enough to follow them off the cliff. Well, of course, it is easier to blame someone else for losses other than yourself, and no one does it better than GATA.
Its most recent out-of-context "proof" was taken out of a speech made by Oleg V. Mozhaiskov, the Deputy Chairman of the Bank of Russia.
In fact, GATA now proudly puts forth Mr. Mozhaiskov's speech in support of its manipulation theories.
"This dualism in gold price formation distinguishes it from other commodities and makes the movements in the price sometimes so enigmatic that market analysts need to invent fantastic intrigues to explain price dynamics. Many have heard of the group of economists who came together in the society known as the Gold Anti-Trust Action Committee and started a number of lawsuits against the U.S. government, accusing it of organizing an anti-gold conspiracy. They believe that with the assistance of a number of major financial institutions (they mention in particular the Bank for International Settlements, J.P. Morgan Chase, Citigroup, Deutsche Bank, and others), some senior officials have been manipulating the market since 1994. As a result, the price dropped below $300 an ounce at a time when it should, if it had kept pace with inflation, have reached $740-760.
I prefer not to comment on this information but dare assume that the specific facts included in the lawsuits might have given ground to suspicion that the real forces acting on the gold market are far from those of classic textbooks that explain to students how prices are born in a free market."
And, despite's Mr. Mozhaiskov's labeling GATA's perspective as a "fantastic invention," it still proudly cites this speech in support of its perspective.
Again, GATA is not in the business of truth, but in the business of finding the bits and pieces of what people say to support its "fantastic invention" of a perspective. You see, the most important sentence in Mr. Mozhaiskov's speech relative to this issue will never be specifically cited by GATA:
"Now the time has come to admit that investment demand was, and still is, the main driving force behind price fluctuations on the gold market."
But, will GATA admit that? No. It will continue to further its "fantastic invention" regarding market manipulation by doing what it has always done - ignore what it doesn't want to read, and then take the rest out of context. And, this is not the first time, nor will it be the last.
Quite some time ago, I wrote an article explaining why I did not believe that the metals market was manipulated by the Fed to drop by 40% in gold and 70% in silver. A commenter to that article argued that even Alan Greenspan, in his testimony before the Committee on Banking and Financial Services in 1998, noted that there was clear manipulation by the Fed in the gold market. In fact, he took this information from a GATA paper written on this matter. This opinion is based upon one line in that testimony, where Greenspan stated that "central banks stand ready to lease gold in increasing quantities should the price rise."
Sounds like he found the smoking gun, right?
Not really, if you read everything he actually said.
You see, these manipulation theorists quote only the sections of a proposition they feel supports their theory, while they ignore everything else said by that person. They simply take these quotes out of context in order to provide their own context and spin to the quotes. To hell with the truth.
In our example of this supposed quote by Greenspan proving manipulation, if one were to actually read the entire paragraph cited by the manipulation theorists, you would realize that Mr. Greenspan was not claiming that the Fed was actually leasing gold to manipulate the price. Rather, Mr. Greenspan was discussing a hypothetical methodology which MAY combat an attempt at market manipulation in the gold market. Yes, you heard me right. Mr. Greenspan was not "admitting" that the Fed leases gold to manipulate the price, as the manipulation theorists would have you believe. He was discussing a hypothetical methodology through which the Fed MAY use to combat attempts at manipulation by someone else in the market.
Again, it deserves repeating. Mr. Greenspan did not admit that the Fed manipulates gold. Mr. Greenspan did not even note that there was anyone who manipulated gold. Rather, he was saying that IF someone attempted to manipulate the gold market, the Fed MAY have a tool to combat such manipulation attempts. More importantly, he never even opined as to whether such a tool would or could even be successful.
Now here comes the kicker, which will NEVER be cited by GATA or any other of the manipulation theorists. Within that exact same testimony, and only a few paragraphs later, Mr. Greenspan not only noted that manipulation did not likely exist in the gold market, but even said that the market was not likely susceptible to manipulation at all:
"Even with centralized execution or clearing, the most relevant attributes of these markets would not resemble those of the agricultural futures markets and hence would not be susceptible to manipulation."
Yes, please read that again. Mr. Greenspan noted that the gold market "would not be susceptible to manipulation."
But, don't even bother highlighting to the GATA folks what Greenspan REALLY said, as they are the Foghorn Leghorn of the metals world:
"Don't bother me with facts, son. I've already made up my mind."
In addition to taking quotes out of context, there is a second method through which they attempt to prove wholesale manipulation. GATA and its ilk will often point to evidence of small price manipulations and suggest that these "paper cuts" have caused the market to bleed to death. Yet, none of their supposed "proof" provides even a shred of clear evidence that the gold market was manipulated to drop over 40% and that the silver market was manipulated to drop over 70%.
The latest supporting "evidence" to which the manipulation theorists proudly hang their hat is the recent news about Deutsche Bank's (NYSE:DB) admission of "manipulation," as well as all the other cases where fines were assessed. Everyone now assumes they have found the smoking gun which "caused" silver to drop by over 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%. 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 and GATA have been pointing to explain why silver lost 70% of its value when they did not see it coming.
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.
While many will undoubtedly misread my conclusions as my claiming that there is no manipulation in the market, and post comments about how wrong I am about claiming there is no manipulation at all in the market, I suggest you actually read what I have said again. And, if you still cannot come to the correct conclusions, allow me to lead you in the right direction.
I do recognize that there is "manipulation" in the market by larger market participants. But, as the cases on the matter clearly point out, these "manipulations" are of a very small degree of market movement, or, "paper cuts," as I have referred to them in the past. And paper cuts do not cause a market to bleed to death.
Moreover, as the cases also present, these small degree manipulations occur in both directions. Please read that again: THESE SUPPOSED SMALL DEGREE MANIPULATIONS OCCURRED IN BOTH DIRECTIONS.
Therefore, my proposition is that such "manipulation" did not cause gold to drop by 40% and silver to drop by 70%. And, I will reiterate my proposition that proof of a "paper cut" is not what caused the market to bleed to death. Rather, we call that a market correction and not a market manipulation. Accept it.
There is not a single market in the world that does not move in two directions over the short and intermediate term. However, overall, over the very long term, markets generally trend upwards. And the reason financial markets trend upwards over the very long term is that society is generally progressing over the very long term. But, based upon the manipulation theorists' perspective, we should only progress in the price of gold and never experience periods of regression. From their perspective, the metals should act differently than any other asset on the face of the planet.
You see, if one understands that markets do not move in only one direction over the intermediate and shorter term, then one would have been able to recognize that the market was topping back in 2011. So, the next time you consider giving any credence to the manipulation theorists, look to see if there was even one manipulation theorist that recognized the market was topping back in 2011, or if they were wildly -- and wrongly -- bullish at the time? I think we all know the answer to that question.
So, could it be that their "theory" is attempting to mask their abject failure between 2011 and 2015? One really has to begin to question the motivation behind these manipulation theorists. What prompted them to head down this path?
Well, let's be honest and recognize that not a single one of them recognized the top in 2011, as they were each wildly bullish at the market highs of 2011. They did not recognize the impending sentiment change in the market. They had no clue that the market was about to reverse. All they saw was a one direction market, and they looked quite foolish still looking for the market to "certainly" exceed $2,000, while the market was setting up to target $1,000. Do you think it would be good for business or their reputations if they were caught being so dreadfully wrong about market direction? They had no choice but to come up with something to save face. They needed a scapegoat.
Even if you do not buy into the fact that markets progress and regress in natural due course, for the sake of your investment account, you should at least consider what 2011-2015 has meant to your investment account.
We can all agree that the ultimate goal for every single investor is to develop the appropriate tools to align their investment account with price. Anything else is a side show or misdirection. So, if there is someone who is providing you with an excuse as to why they have been on the wrong side of price during a 50%+ draw down, for the benefit of your investment account, their perspective must be discounted, especially if they are trying to blame someone else for their failure.
Is there any other market in the world where you would adopt or accept such excuses for being so horribly wrong? Then why are you so willing to buy into the specious claims of the manipulation theorists?
Now, I am quite certain that I and my analysis methodology will be summarily attacked by GATA and its followers. So, I will simply provide two quotes to you:
"Again, since we are most probably in the final stages of this parabolic fifth wave 'blow-off-top,' I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time." - Avi Gilburt, August 22, 2011
"As we move into 2016, I believe there is a greater than 80% probability that we finally see a long term bottom formed in the metals and miners and the long term bull market resumes. Those that followed our advice in 2011, and moved out of this market for the correction we expected, are now moving back into this market as we approach the long term bottom ... We are now reaching our ideal target region, and the pattern we have developed over the last 4 years is just about complete ... For those interested in my advice, I would highly suggest you start moving back into this market with your long term money ..." - Avi Gilburt, December 30th, 2015
Maybe GATA will have to consider that I am really the one manipulating the market!