In the wake of the Gold Flash Crash six days ago in which prices suddenly plunged then recovered, numerous people have been wondering “who is the culprit”.

Will the Real Manipulator Please Stand Up?

At the top of the heap in demanding an investigation is a guest post article on ZeroHedge, written by Russ Winter, Open Letter to Gold Investors: Will the Real Manipulator Please Stand Up.

Winter maintains “The real debate should center on who is really conducting this gold attack activity. Financial journalists should be looking at this as well.

I am amused by this kind of waste of time, but even more amused by the details that Winter disclosed.

The Commodity Futures Trading Commission’s most recent banker participation report on positions as of Dec. 1 shows the U.S. banks as four participants. They are not identified by name, but historically and deductively, JP Morgan is the largest and most dominant participant. Over the last quarter this report has shown that the four big banks have continued to build a net-long position, now at 57,408 futures contracts, or 5.741 million ounces.”

So is JP Morgan the short manipulator of gold as some suggest? At one time perhaps, but now I believe the answer is unequivocally “no” and, in fact, the complete opposite. JP Morgan and the three other U.S. banks have a large net-long position equal to nearly 15% of Comex open interest.

When Shorts Cover

For years we heard from GATA and others “JPMorgan and the gold shorts will be blown out of the water and eventually forced to cover their shorts at higher and higher prices. Gold will go to the moon”.

What happened? Somewhere along the line, JPMorgan became net long as the price of gold plunged. Now we are in search of a different elusive force allegedly suppressing the price of gold.

It’s always someone. And the same ridiculous articles appear over and over, with fingers occasionally changing the direction of the “big point”.

What Happened?

Clearly the JPMorgan conspiracy crowd was wrong about what would happen when JPMorgan covered. And with JPMorgan now net long where are the cries for JPMorgan to dump its now-concentrated net-long hoard of gold?

Futures Math

Market Makers (of which JPMorgan is one of the biggest), must take the opposite side of the trades of others. When big players are net long gold futures, then JPMorgan will be short. If someone else is massively short, then JPMorgan or another market maker will be long.

In the futures game for every short future someone else is long. That is a simple mathematical statement of fact.

Futures Math Corollary

If market makers must (and they must take the other side of positions) then position statements and market-maker analysis as to who is long or short cannot and do not offer proof of manipulation.

Yes, it is that simple.

I propose the big players don’t care one iota what direction something is headed. They are happy to make a profit in any direction.

Finally, it is realistic to assume the entire time JPMorgan was net short, that it was hedged in some fashion (otherwise it would have been blown out of the water when gold hit $1900).

Manipulation Risk

Does manipulation occur? I am sure it does, in both directions. Is it illegal? I am not so sure. It depends on what one means by “manipulation”.

I asked my friend Pater Tenebrarum at the Acting Man Blog for his thoughts on the subject. Via email he replied …

Are there occasional attempts to influence prices in the short term by ‘bombing’ the market during periods of low volume? Yes, it happens.

Once someone sold 2,000 contracts at market in the middle of the night at precisely the time when both trading volume and order books are at their smallest. The seller accepted a loss of at least $2 million as compared to what he could likely have gotten during more liquid hours. The only reason to do that is if one tries to artificially drive the price down.

However, the opposite also happens on occasion, with traders trying to drive prices up in the wee hours.

I suspect that the traders involved take options positions beforehand, but this kind of activity is not without risk. You never know for sure if you will succeed in triggering stops or if perhaps eager buyers or sellers are waiting for just such a move to strike.

Mistakes can be very costly.


In a followup question on the legality of dumping or buying contracts at illiquid times Pater responded …

It may be a slightly dubious practice, but it is definitely not illegal. The people doing it take a pretty big risk actually.

I personally don’t waste much time thinking about market manipulation by private parties, since it always fails in the end anyway.

All manipulations eventually fail, I only brought up ‘private parties’ because the one type of manipulation I do worry about is that by government bodies like the Fed, as it does economy-wide damage.


There is no credible evidence of a constant force by any big players to suppress the price of gold.

Every time I make such a statement I get sent a mass of GATA-hype, none of which amounts to proof of anything. Invariably, the alleged proof is nothing more than GATA allegations trumped up as facts.

Looking for GATA hype? You can find it here: Where are the insider admissions about gold? Right here

Looking for a detailed point-by-point rebuttal? You can find it here: Systemic Distrust and GATA Hype

Once again, I am NOT saying manipulations Don’t occur. Nor do I suggest JPMorgan is lily-white.

Instead I repeat something I have said all along “There is no reason for the banks involved to continuously and purposely want to suppress the price of gold. Nor is there any real evidence they do so.”

And humorously, JPMorgan is now net long!

Gold Fundamentals

I suggest you throw these manipulation allegations in the ashcan where they belong and focus on something more important such as the fundamental driver for the price of gold. The fundamental case for owning gold has not changed.

For details, please see Plague of Gold Bears Now Say “Gold Unsafe at Any Price”; What’s the Real Long-Term Driver for Gold?

Mike “Mish” Shedlock