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‘Suicide Bombers’ in the Gold Market?

Articles & Blogs - Gold Commentary

User Rating: / 27

I was listening to another fine interview on the King World News site, this one with Ben Davies of Hinde Capital, when I was immediately intrigued by some of Davies’ remarks.

He stated that he considered the entire, recent trading-episode in the gold market “suspicious”, for two reasons. First of all, he was surprised that any (competent) trader would have leveraged himself into such a dangerous position. Secondly, and connected with his first observation, he expressed equal surprise that the so-called “regulator” (i.e. the CME Group) would have allowed such a flawed and vulnerable trading position to have been created.

What Davies (and others) have apparently not considered is that this “leveraged”, “dangerous” trade was created to fail – in spectacular fashion. Essentially it appears that the Wall Street banksters (and the corrupt institutions who serve them) have imported the terrorist concept of “the suicide bomber” to precious metals markets.

For those not familiar with the episode to which Davies refers, a previously unknown metals trader named Daniel Shak used $10 million to leverage his way into an $850 million “spread trade” (i.e. 85:1 leverage) in the U.S. gold futures market - equal in size to more than 10% of this entire market.

With the banksters printing-up “money” by the trillions, $10 million is nothing more than pocket-change, and even eating the entire $850 million loss represents just slightly more than 0.1% of Bernanke’s most recent money-printing. Does anyone here think that Wall Street would be happy to throw away a mere $850 million – when default in the precious metals market threatens JP Morgan (and others) with out-and-out bankruptcy?

The logic here is elementary. When you have a committed hyperinflationist like Ben Bernanke ready to create another $600 billion (out of thin air) with merely a mouse-click – any and every time Wall Street requests a new shipment of Bernanke-bills – then throwing away (deliberately) a few billion dollars on a “bad trade” is (literally) no different than losing a game of “Monopoly”.

The “game” ends, another batch of Bernanke-bills is printed up – and another “suicide bomber” enters the precious metals market. While readers may be horrified at yet another example of Wall Street’s incessant “economic terrorism”, precious metals investors need have no fear of yet another desperation tactic by this crime syndicate.

As I regularly remind readers, none of the games the bankers play in markets (and terrorism is currently their favorite game) can do anything more than briefly stall the rise in precious metals. The bottom-line will always remain that once the last of the banksters’ (real) bullion has been given away…by themselves…at rock-bottom prices, then their manipulation games are finally over.

Yes, the banksters have leveraged their actual bullion by (at least) 100:1. Yes, these reckless criminals will continue to increase that insane leverage – to 1000:1, or even 1,000,000:1. The only important number in this ratio is the “1” on the right. It is totally irrelevant (on a long-term basis) how far the banksters are able to ratchet-up their leverage – on their road to self-destruction.

Once the “1” on the right becomes a “0”, the game is over. A “hundred times” zero is still zero. A “billion times” zero is still zero. When their physical bullion is gone, their entire empire of manipulated bullion markets, and bogus “bullion products” will simply evaporate into thin air – just like the rest of the banksters’ fiat-paper empire.

In the meantime, all that the invention of precious metals suicide bombers really means is that there will be even greater “volatility” in this market. This has several implications. Over the short-term, idiot-traders who continue to try to “play” this market with leverage will be wiped-out at an even greater rate/speed. Ultimately this is good news, as wringing all of the leverage out of the “long” side of this equation simply puts all that gold and silver into “stronger hands” – who can never be forced out by the bankers. In this respect, the CME Group’s short-sighted decision to recently jack-up margin requirements (only for gold and silver “long” investors) also makes the longs stronger over time.

The other implication here is the old adage among veteran investors that “volatility is a friend of the investor”. All readers need to understand that without volatility there is no money to be made in markets. If all assets are/were perfectly and fairly priced, then there would be no potential for either profits or losses.

Volatility (by definition) pushes assets above or below their “fair market value”. This makes the rules of the game ultimately very simple: when the banksters push-down bullion prices, we buy physical bullion (and the shares of the precious metals miners), when volatility causes a spike in the sector, we take some profits with our shares in the miners – and look for the opportunity to reinvest those profits at better prices.

We do not sell our bullion – because our bullion represents our financial “insurance”, not a mere investment. Would any homeowner sell off the fire insurance they have on their home, simply because they could unload their insurance at a profit?

Rather than allowing the Wall Street banksters to make us their victims, ordinary precious metals investors need to think like “the big buyers” – and allow the banksters to work for you, not against you. Ignore their terrorism, and conquer your own fears. “Defeat” in the precious metals market is inevitable for the banksters. These Wall Street ambushes of the precious metals sector now truly only represent one thing to the rational investor: a “sale” on precious metals assets.

Fear of the unknown” is one of the greatest weapons of Wall Street (just like all terrorists). In this respect, merely identifying these suicide bombers as another transparent bankster tactic greatly diminishes the impact of this terrorism. We need not “fear the Reaper”, we only need to understand him.


Comments (4)Add Comment
written by subscriber, February 22, 2011
Interesting piece - it had not occurred to me that this was engineered. But now that I think of it, I am reminded of all the other "rogue trader" incidents that have occurred in recent years, and I always wondered how these companies could have such horrible internal control that these people can play these games without being spotted until too late.
Jeff Nielson
written by Jeff Nielson, February 09, 2011
Navderek, thanks for asking the question. That was why I used the metaphor of the "suicide bomber". This was a VERY large, VERY leveraged trade - which was CREATED to "blow up". However I should have explained the "mechanics" in greater detail.

When a leveraged trade "blows up" it means a large MARGIN CALL. That forces this trader to liquidate this MASSIVE position (more than 10% of the entire market) COMPLETELY, into a falling market.

In other words, an over-leveraged trader facing a margin-call functions EXACTLY like a "short": conducing massive SELLING which pushes the price lower and lower - triggering the INEVITABLE (but foolish) "stops" which these traders have on their trades, creating the inevitable downward avalanche.

What is AMAZING (given the size of the operation) is that the banksters could ONLY push gold down less than 10%. I trust the banksters are appropriately horrified by their level of impotence.
written by navderek, February 09, 2011
For those not familiar with the episode to which Davies refers, a previously unknown metals trader named Daniel Shak used $10 million to leverage his way into an $850 million “spread trade” (i.e. 85:1 leverage) in the U.S. gold futures market - equal in size to more than 10% of this entire market.

I followed the link but to read the entire article requires a subscription. However in the brief intro it sounds like this guy went mostly LONG on gold....so how could he be working for the banksters if that was so? I'm confused...
written by bobbbny, February 07, 2011
Spot on Jeff.
As the cartoon teddy bear says, "the price doesn't matter".
Buy physical. Scorch the shorts.

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