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Brien Lundin: Proof of gold market manipulation

Section: Daily Dispatches

By Brien Lundin, Editor
Gold Newsletter, Metairie, Louisiana
Thursday, June 25, 2015

As long-time readers know, I've been skeptical that the anyone in the U.S. government is manipulating the gold market on a daily basis. That skepticism is rooted in my confidence that the government would screw up any attempts at active, high-tech manipulation. Just look at their inability to prevent the Chinese from obtaining confidential personnel files on tens of millions of Americans -- after having already seen them hack into the system once without downloading the files.

To quote the great 20th-century philosopher Ringo Starr, "Everything the government touches turns to crap."

No, a minute-by-minute manipulation of the gold market isn't within the capabilities of the Washington bureaucracy. But somebody is doing it -- of that there is no longer any doubt -- and they're doing it by the millisecond.

... Dispatch continues below ...


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That's the conclusion of a number of comprehensive analyses by Nanex (, a company that offers software and data that tracks quotes and trades on the major U.S. equity exchanges sequentially. In other words, quote by quote, trade by trade, by the millisecond. That alone is a great service. But under the direction of CEO Eric Hunsader, Nanex has also conducted investigations of many anomalous trading events in the markets and has tracked the rise and impact of high-frequency trading. Their research site --

-- deserves browsing by anyone interested in shenanigans now being perpetrated on a daily basis by HFTs and their algo trading software.

Of particular interest to us, Nanex has identified and examined some "flash crashes" that occurred last year and this year in gold. This Zero Hedge post --

-- describes Nanex's study of the most recent such event, on Tuesday, June 25, when "15 minutes after GDP data was released -- showing Q1 was indeed as weak as expected and inventories suggesting Q2 will be just as weak -- someone decided it was an appropriate time to dump over half a billion dollars of notional gold on the futures market. ..." (Emphasis by Zero Hedge.)

The Nanex studies can get a bit technical but they are fascinating. For instance, their examination of a flash crash that occurred on January 6, 2014, showed how gold was forced down over $30 in less than 100 milliseconds. By breaking the groups of trades into jumps in the exchange sequence numbers, they were able to identify nine groups where the sum of the trade sizes was precisely 338 contracts.

At the time of this flash crash, blame was placed on someone's "fat finger" trade. As Nanex concluded, "This was not the result of a fat finger, but rather the work of a high-frequency trading algorithm that paused and (probably) tested the market before continuing. A fat finger would not have such distinguishing features. What is disturbing about this algorithm is that it carefully waited so as not to trip the CME's stop logic and halt the stock. The halt was from the more lenient volatility circuit breaker after the price declined $30 in less than a second. This algo appears to have been more concerned about preventing an immediate halt rather than getting the best prices. Since the value of the trades was close to $500 million, there aren't a lot of suspects."

To me this is ironclad evidence that someone is manipulating the market in a very sophisticated way, and not necessarily for profit-driven reasons. And as
Nanex observed, the list of actors who can employ $500 million in what was essentially a single trade is short.

In this case, the evidence was even convincing enough to prompt the CME into action, whereupon it recently fined Mirus Futures LLC $200,000 for failing "to adequately monitor the operation of its trading platform (Zenfire) and the connectivity of its trading system (Zenfire) with Globex. This failure resulted in unusually large and atypical trading activity by several of the firm's customers and caused the mass entry of order messages by Zenfire, which resulted in a disruptive and rapid price movement in the February 2014 gold futures market and prompted a Velocity Logic event."

As Zero Hedge notes, Mirus was sold to Ninja Trader about a year ago and all the people behind the scheme have probably now scattered to different HFT enclaves.

So, yes, the manipulation of gold and silver is ongoing. But don't count on any sweeping regulatory action to rein in HFTs or their backers until they trip up the more important markets that Wall Street is involved in.

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