MANIPULATION – Is it a Matter of Definition?


QUESTION: Hello Mr. Armstrong,

Thank you very much for your blog – I visit daily!
Is it possible that both you and the gold bugs are correct?
I think your argument with the gold bugs may be a misunderstanding.
The problem lies in how you define manipulation.
When a large sale occurs in illiquid hours, I can’t think of a legitimate/logical reason – If you can please advise.

ANSWER: If you define manipulation as just impacting a market for a quick buck that is one thing. If you define manipulation as change the actual trend – that is impossible. The banks with their proprietary trading ALWAYS seek the guaranteed trade. They are goosing the market in one direction or the other. However, that takes place WITH the trend. Trying to change the trend as Japan attempted for 23 years utterly failed.

The Fed also KNOWS it does not control even interest rates. The long-term rates have NEVER been within their ability to change. This is what QE was all about. They bought the long-term trying to bring down those rates and are now trapped. They are so short, and attempt to reverse sends the rates sharply higher.

Do people try to goose the price of a market? Yes. Is a concentrated sale altering the trend? NO. Gold is in a bear market anyway. It did not change the trend. Excusing this as a manipulation and somehow not real causes losses because people then are encouraged to hold all the way down and typically capitulate at the low and then do not come back.

The point is markets are markets. There will always be attempts to goose the price of anything. But this takes place with success when it going with the trend. Floor brokers have often fished for stops. This is true in all markets.

The definition is clear. NOBODY, not even government, is capable of manipulating anything against the free markets, You can goose the market and this is what makes the spike highs. Gold rallied from $400 to $875 between December 1979 and January 21st, 1980. Was that a manipulation? The dealers were bidding it up to suck in everyone they could. Then in silver, they altered the rules at the top and increased the margin to go long and almost twice the margin to go short. Everyone suddenly heard about the Hunt Brothers. I knew about them in early 1970s. Suddenly everyone knew because that is how the dealers sold the high.

The problem with the Goldbugs is simple. Anything to the upside is “real” while anything to the downside is a “manipulation”. Our computer model projected January 21, 1980 to the day more than a month in advance. It was a matter of time and how long such a Phase Transition can be maintained.

Do not confuse playing with amplitude with the ability to actually manipulate and change trend. The first is common, while the latter is impossible.