The results from a recent study are incredible, and unfortunately, I am not surprised. The report found that 29% of Americans still believe the U.S. dollar is backed by gold. The objective of the study was to see how well the average consumer understood the Federal Reserve system, banking, and fiat money. Given the paucity of knowledge the U.S. citizenry has of how our financial system and currency functions, it is a given that they are even less aware of how the global stock market functions and what it has morphed into.
- Perceptions of Money and Banking in the United States 2019 – PR Newswire, Oct. 30
The U.S. Commodity Futures Trading Commission (CFTC) announced another legal action today against an institutional trading firm for spoofing in the futures markets. I have repeatedly noted that the use of automated trading technology is not a gold-specific problem and is prevalent across all markets. Today’s charges only serve to drive home that point. Stop wasting time looking for a newsletter or precious metal industry publication for answers about banking institutions or a government-sanctioned entity to blame. The source of market chaos is right under your nose, and it has been that way for at least a decade.
CFTC Orders Proprietary Trading Firm to Pay Record $67.4 Million for Engaging in a Manipulative and Deceptive Scheme and Spoofing… “The CFTC today issued an order filing and settling charges against Tower Research Capital LLC, a proprietary trading firm, arising from a manipulative and deceptive scheme, spanning nearly two years and involving thousands of occasions of spoofing in equity index futures products traded on the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT). The order finds that Tower, by and through three former Tower traders, engaged in this unlawful activity while placing orders for, and trading futures contracts through, Tower accounts, which benefited Tower financially while causing $32,593,849 million in market losses. The order imposes a total of $67.4 million against Tower, comprised of $32,593,849 in restitution, $10,500,000 in disgorgement, and a $24,400,000 civil monetary penalty—the largest total monetary relief ever ordered in a spoofing case. It also requires Tower to cease and desist from violating the Commodity Exchange Act’s prohibition on spoofing and the use of manipulative and deceptive schemes. This case was brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force.” – CFTC, Nov. 7
Excerpt from my Oct. 14 article:
“Just like the global warming cultists that converted to a “climate change” catchphrase after facts caught up with the conspirators and chiefs, the troll farm and “blame anything but the obvious” crowd that existed well before Greta’s “how dare you” meme has adopted that brand of hysteria after a DOJ spoofing indictment for gambling within the institutionalized digital spaghetti. The wired angel hair of modern automated trading platforms that regurgitate algorithmic mayhem laden with machine learning AI, HFT, and dark pools took root and matured a decade before the SEC or DOJ had an epiphany to finally grow a pair and recognize the weather patterns of modern trading technology… “Technocracy has unwittingly unleashed a self-aware contemporary Hal upon the financial markets, and we are forbidden by our biology to join as a member. The machine-learning club does not care about your feelings or assumptions of what any particular asset, equity, or market should do, no matter how deep an in-the-know access may consider itself… However, you do have the beauty of fusion/technical analysis at your disposal.” – TraderStef
I will point out one other legal proceeding where the SEC recently caught 18 spoofing gamblers from China. Even though the defendants had multiple brokerage accounts, the SEC nailed them by identifying the IP addresses from where the orders originated.
- SEC freezes assets of 18 traders over alleged manipulation – Reuters, Oct. 16
Financial authorities’ use of technology has evolved over the years and culminated into tools enabled by big data architecture or A.I., collectively called SupTech. There will be many prosecutions in the future, and the ability to manipulate any market for personal gain without detection will become extremely difficult.
The Suptech Generations… “From a market surveillance perspective, a big data architecture makes it possible for financial authorities to perform real-time market transaction monitoring. Securities market supervisors, such as ASIC and SEC, transform enormous data sets into usable patterns for market surveillance purposes, including in the detection of potential insider trading and market manipulation.” – BIS, Oct. 17
Automated trading technologies have enabled the machines to read and machine-learn breaking news headlines, which result in the instantaneous execution of block trading. The effect is obvious to a seasoned trader that views real-time price action on a chart. Recent events regarding Brexit have launched chaos in the currency markets at times, in addition to the trade war negotiation with China where sentiment can reverse with one mainstream headline or Tweet. Today’s back and forth over China was no exception, as the precious metals took a beating due to the headlines.
- Cable Spikes As Labour Backs Johnson’s Bid For Election – ZeroHedge, Oct. 29
Gold climbs back above $1,500 to settle at a 5-week high … “A news report that said China officials have doubts over prospects for a long-term trade deal with the U.S. fed declines in U.S. stocks and haven demand for gold.” – MarketWatch, Oct. 31
- Gold prices fall on optimism about US-China trade resolution – India Today, Nov. 4
- China says it has agreed to cancel existing trade tariffs in phases – CNBC Nov. 7
If you missed my recent analyses on the price advance of gold:
- A Silver Note & Screaming Gold Rally Pauses After the Dog Days of Summer – Aug. 31
- Savvies Were Aware of the Near-Term Risk for a Pullback in Gold and Silver – Sep. 7
- Gold Gamblers Spoofed Into RICO Prison – Sep. 22
- Monkey Hammered Muppets – Oct. 14.
Once again, there was no major shift in the CFTC’s Commitments of Traders (CoT) report data as of Oct. 28, as there is a standoff of sorts over the last several weeks with no significant change in positioning vs. the price trend, so I will not cover the CoT today. The next CoT report will be released tomorrow.
Here is the seasonality chart for gold that is marked for where we are today.
To view a larger version of the following chart, right-click on it and choose your “view image” option.
Gold weekly chart as of Nov. 7, 2019 at 6pm EST…
Excerpt from the Aug. 31 weekly chart analysis:
“The pattern that has taken hold is an Up Channel with a bearish Plunger candlestick (aka Shooting Star) print for the last week of August. Whether the $38 breather is the beginning of a larger pullback before consolidation takes place will be determined by the September news cycle… The price action made a stellar attempt at reaching the $1,586.65 Fibonacci, but no cigar… The ADX at 65 is approaching overbought territory, the StochRSI is threatening a break to the downside after bouncing along overbought territory since June, the Money Flow is rolling over, and the Volume printed lower than the peak in June for a second time. I remain bullish long-term as noted on the monthly analysis, but caution is warranted in the near-term until a price consolidation takes hold and a price pivot to the upside with conviction takes place.”
Excerpt from the Oct. 14 weekly chart analysis:
“As warned about in the Sep. 20 analysis, the potential for a $20 retreat did occur with a break below the $1,483 Fibonacci on Sep. 30 and Oct. 1, but no major technical damage occurred… A pattern that has developed on the weekly chart since the Sep. 4 high is a Half Staff Flag. The price action has consistently closed above the $1,483 Fibonacci level and below the $1,526 Fibonacci on a weekly basis since Sep. 10. The 21 Exponential Moving Average (EMA) is sitting at the $1,450 level and remains in an upward tilt at this time. The 21 EMA is also at a lateral support area near the highs of the recent Flag Tilt. The DMI-ADX remains positive but with a downward trend, the StochRSI is basing out, the Momentum and Money Flow indicators continue to roll over, and the Volume is steady with no definitive trend vs. the choppy price action. I remain bullish long-term, but caution is warranted until $1,526 is taken out with conviction.”
This is the sixth week that the gold price has not been able to retake the $1,526 Fibonacci level. Despite the pullback, there is no major technical damage to the chart thus far, but the situation is precarious.
Today’s price action tapped the $1,463 Fibonacci that matches a low put in five weeks ago, and due to that length of time, the 21 EMA is now acting as support. If the 21 EMA is breached to the downside on heavy sell volume, the price could free-fall inside the gap between two Fibonacci levels where there are no moving averages, which is pointed out by the double red arrow. A worse-case scenario is $1,400 if significant progress with China confirms in the near-term, but several lateral support levels with substantial buy volumes in the previous Flag Tilt pattern will provide some support between $1,430 and $1,450. Unless substantial dip buyers appear soon or some other market event trips the machines into risk-on mode, the risk is high for further downside.
One positive that stands out is that volume has fallen throughout the price correction since mid-September. The DMI-ADX remains positive but continues to roll over, the StochRSI is deep into oversold territory, and the Momentum and Money Flow are in plunge mode. I remain bullish long-term, but caution is warranted until $1,526 is taken out with conviction. In the meantime, it is a scalping environment for traders and a core position-building opportunity for the seasoned investor.
Here are a few articles and interviews to peruse before closing up shop tonight:
- UK unveiled a $23,000 payment card made from solid gold – CNBC, Oct. 11
- In an Illusory World, Gold Is The Truth-Teller – GoldBroker, Oct. 16
- Central Bank Hints at a “Big Reset” – Birch Gold Group, Oct. 18
- Russia Brags Gold Hoard Protects Economy – Newsmax & CNBC Oct. 21
- Gold Shining Through Recession Clouds – In Gold We Trust Chartbook, Oct. 2019
- Precious metals round-up – Alasdair Macleod, Oct. 24
- One Of The World’s Largest Oil Companies Just Ditched The Dollar – OilPrice, Oct. 24
- Stock Market Crash Near? Robert Shiller Sees ‘Bubbles Everywhere’ – IBD, Oct.25
- Gold, the Shining Star Among Commodities – FX Empire, Oct. 25
- Chinese Investors Pile Into Gold As Economic Worries Surge – Forbes, Oct. 28
- Ron Paul Foreign Central Banks Going for Gold – Peter Schiff, Oct. 29
- The need for bullion banking in India – World Gold Council, Oct. 31
- Video: How Negative Interest Rates Work – Consumers And The Economy – CNBC, Nov. 1
- Growth fears prompt exchange traded funds to pile into gold – FT, Nov. 5
- Gold Demand Trends Q3 2019 – WGC, Nov. 5
- Gold investment demand persists amid shrinking production – Australian Mining, Nov. 6
- What’s Behind the Fed’s Bailout of the Repo Market?- Wolf Street, Nov. 6
- Loose monetary policy supports long-term gold price rally – Kitco, Nov. 6
The Rolling Stones – Far Away Eyes
Plan Your Trade, Trade Your Plan
TraderStef on Twitter