The #BitcoinBreakdown: Before You Buy, More Caveats

First Appearing on HedgeAccordingly.com

Fifth in a series.  Part 1, Part 2, Part 3, Part 4, Part 5

By @sellputs

Let us regard the wonders of technology & innovation: Suddenly, we now have multiple easy ways to lose money betting on bitcoin. Giddyup!

With incredible speed, from your laptop or even your smartphone and without even thinking about it, you can open up a new account, inject real U.S. dollars into it, use that to buy a teensy piece of your favorite cryptocurrency, and begin surfing the bitcoin wave. Or begin getting crushed by that wave, depending on your timing, smarts and luck.

This occurs to me on a recent Thursday night, as I visit an old friend in Brooklyn and bring along Big Guy, a college pal who stands 6-feet-4 (“and a half,” he feels it necessary to point out).  The Big Guy and I had been hanging out at the famed Waverly Inn in the West Village in Manhattan, where I had the vodka martini, marked down on special: just $28, down from $30 list.

This next point has nothing to do with bitcoin, okay? I gotta say: Anybody who regularly spends 30 bucks on a martini is a P.T. Barnum-scale sucker.  What a waste of money.  Waste it, instead, on something really irresponsible. . . . like bitcoin.

Anyway, we’re standing around a table in my friend’s apartment in Brooklyn, and Big Guy is taking swigs from a bottle of Blue Point Winter Ale and staring into the screen of his smartphone, as if mesmerized by some new videogame. Instead, he is tracking his own cryptocurrency trades.

“Uh oh, Ethereum is flash-crashing,” he says. He had gotten got into Ethereum (ETH), a newer “altcoin” alternative to bitcoin, a few days earlier at $620, watching it rise to $740 in a day or two and holding on, only to see it crash instantly down to $650 just this moment.  Should he sell?

Guy resists the urge and doubles up on his bet, adding to his ETH holdings (as well as Litecoin, LTC) “to lower my cost basis and scalp the bounce-back from the flash crash,” as he describes it later.  By 3 a.m. that same night, Ethereum had re-inflated to rise back up even higher, to $850. Whew.

Big Guy had put $10,000 into a new account he opened at Coinbase, a digital exchange akin to the New York Stock Exchange (except it is unregulated and carries no particular guarantees, far as I can see).  He had bet his stake all on bitcoin, pulling out after a 53% gain in a week, after commissions.

Guy opened up a second account, this one on GDAX, a 24/7, online platform in the rather unregulated, Wild West of crypto (it is owned by Coinbase). GDAX offers FDIC guarantees up to $250,000 (what happens to your money as a result of your trades is on you). On GDAX, he bet his bitcoin profits on the two lesser lights, ETH and LTC.  He says he can take profits out of Litecoin in only minutes, while transferring money out of bitcoin would take several hours. (LTC is lighter-traded than the binge-fueled bitcoin.)

GDAX charges him 25 basis points (0.25% of the total value of the trade) for “taking markets,” that is, buying coin shares on offer, and no fee at all for “making markets,” or selling on the platform.  Coinbase’s buying fee, at 1.5%, is fives times as much that of GDAX. A few days after he sat out the mini-flash-crash, Guy transfers some LTC from his GDAX account to another coin platform, Binance, where he wants to sell LTC and spread the proceeds among various coins trading below $5 apiece.

And a day or two after that, Big Guy is beaten down: He was up 75% and lost most of it all when he panicked and fled ETH and LTC at the bottom of a later plunge. Too fidgety. Easy come, easy go. He’s back in Ripple, though, and it has been “outperforming.”

Yes, the Big Guy admits, he does worry that in a flash crash or especially high trading volume, he may not be able to minimize his losses and take out cash.  In cryptocurrency trading, the bigger question than whether to sell may be: Can you sell? 

Coinbase limits how much money you can pull out of your account after you sell your crypto and convert the proceeds back to U.S dollars or whichever “real” currency you desire. So, in the event of a crash or some sudden, sharp de-valuation in bitcoins, your ability to act fast and sell your coins might be hampered, and selling your coins could be all but impossible.

Think of it as a football packed with cheering buyers, most of them unaware that there’s only one exit—and it is the size of a doggy door.  Buyer beware.  Puppies, too.

Next up: The high fees for buying bitcoin.

UK Trader Fined 60,000 Pounds For Outsmarting Algos

Yet another UK trader is being punished by overzealous regulators for an accomplishment that should instead have earned him accolades: Outsmarting the machines.

In a case that echoes some of the circumstances surrounding the scapegoating of former UK-based trader Nav Sarao, former Bank of America Merrill Lynch bond trader Paul Walter has been fined 60,000 pounds by the FCA for a practice that regulators call ‘algo baiting’.

Algorithm baiting is similar to spoofing – a practice that has been banned by stock-market regulators as those markets have embraced high-frequency trading practices that have broken markets and made them more vulnerable to this type of manipulation. But fixed income markets, like the Dutch loan market Walter is accused of manipulating, have been slower to embrace HFT-type trading. Because of this delay, Walter is a pioneer. Using BrokerTec, a popular fixed-income trading platform, Walter would place a bunch of bids for a given bond, triggering trend-following algos to follow suit. Then he would quickly cancel the bids. Here’s a more complete explanation per the Financial Times. 

Mr Walter entered bids for Dutch state loans that pushed up their price. Then, when other algorithmic trades followed him in response and raised their bids, Mr Walter sold to them and cancelled his quote. This happened 11 times between July and August 2014 while he was working for the bank, the FCA said, while on one occasion he did the opposite. He netted a total of €22,000 profit from this “algo baiting”.

Mark Steward, the head of FCA enforcement, said the FCA would remain “vigilant” in detecting abusive practices like “algo bating”. Of course, programmers could also build better algorithms, stamping out the practice without any help from the government.

“Market manipulation undermines market integrity and confidence. The FCA will be vigilant in detecting abusive practices and will take robust action to protect issuers and participants from all over the world from the harm caused by such abuse.”

Tellingly, Walter did not know that what he was doing was market abuse. But the FCA still found him negligent even though the regulations surrounding these aggressive trading tactics in fixed income markets are not well-defined.

According to the FCA’s register of regulated individuals, Walter became inactive in August 2014 and previously worked at UBS.

Of course, the government’s motivation in fining Walter sets an important precedent that will help regulators in the future. With the ECB tapering its bond purchases (though that’s not the terminology Mario Draghi would use), the centrally-planned markets regime that’s persisted since the crisis is about to unravel. While many Wall Street strategists and PMs remain bullish, regulators see the writing on the wall. They understand the risks that NIRP, market-distorting asset purchases and an increasing reliance on ETFs and high-frequency trading algorithms have created. And when it all comes crashing down – like it did during the May 2010 flash crash – regulators will already have their scapegoat ready.

Years after the crash, authorities arrested Sarao and blamed him for triggering the largest wipeout in market history by placing large orders for S&P 500 e-mini contracts, then cancelling them, to manipulate prices in a way that would benefit his trading positions. Sarao has insisted he did nothing wrong, but that didn’t stop the UK from extraditing him to the US, where he faces serious jail time, as we noted above.

The irony, of course, is hard to miss: Sarao, a small-time trader, is facing prison, while the architects of today’s broken markets receive accolades and are rewarded with lucrative jobs in private equity once they’re done working in government.

And just so we can relive the flash crash in all its horrifying glory, here is an video courtesy of Nanex showing trading in the e-mini future which Sarao has been accused of spoofing.

The punchline: Sarao"s orders are shown in red, and they disappear well before the most acute part of the flash crash.

 

Mysterious Trader With "Nearly Unlimited Bankroll" Said To Manipulate, Dominate Price Of Bitcoin

It was over three years ago, back in May 2014, when we wrote "How Bots Manipulated The Price Of Bitcoin Through "Massive Fraudulent Trading Activity" At MtGox" in which we first demonstrated one of the more striking observed "bot-driven" bitcoin manipulation schemes, in this case related to the infamous collapse of the now defunct Mt.Gox bitcoin exchnage.

As we wrote at the time, a number of traders began noticing suspicious behavior on Mt. Gox. Basically, a random number between 10 and 20 bitcoin would be bought every 5-10 minutes, non-stop, for at least a month on end until the end of January, by what appeared to be two algos, named later as "Willy" and "Markis." Each time, (1) an account was created, (2) the account spent some very exact amount of USD to market-buy coins ($2.5mm was most common), (3) a new account was created very shortly after. Repeat. In total, a staggering ~$112 million was spent to buy close to 270,000 BTC – the bulk of which was bought in November.

"So if you were wondering how Bitcoin suddenly appreciated in value by a factor of 10 within the span of one month, well, this is why. Not Chinese investors, not the Silkroad bust – these events may have contributed, but they certainly were not the main reason. But who did it? and why?"

Of course, in the end this alleged manipulation did not help Mt.Gox which eventually collapsed in what has been the biggest case of cryptocoin fraud in history.

We bring up this particular blast from the past, because in the latest case of bitcoin market abuse - with Bitcoin trading at all time highs above $3,000 - Cointelegraph reports of rumors swirling about a trader "with nearly unlimited funds who is manipulating the Bitcoin markets." This trader, nicknamed "Spoofy," received his "nom de guerre" because of his efforts to “spoof” the market, primarily on Bitfinex.

Of course, spoofing is what Navinder Sarao pled guilty of last year, when regulators inexplicably changed their story, and instead of blaming a Waddell and Reed sell order for the May 2010 flash crash, decided to scapegoat the young trader who allegedly crashed the market due to his relentless spoofing of E-mini futures (and also making $40 million in the process of spoofing stock futures for over five years).

It now appears that a spoofer has once again emerged, only this time in Bitcoin.

For those unfamiliar, spoofing is simple: it is the illegal practice of placing a large buy order just below other buy orders, or a large sell order just above other sell orders, then cancelling if it appears that the order is about to be hit or lifted. The idea is to make traders think that somebody with deep pockets is getting ready to buy or sell, in hopes of moving the market. If traders see a sell order of 2000 Bitcoin they may rush to panic sell before the whale crashes the price. And vice versa on the bid-side.

As an example of Spoofy"s trading pattern, here is a breakdown of a typical "trade" by the mysterious entity as noted by BitCrypto"ed who first spotted the irregular activity: Spoofy is a regular trader (or a group of traders) who engages in the following practices:

• Places large bids ($2 million and up) for Bitcoin, usually just under a smaller bid order, only to remove them once someone starts to sell. These orders usually have a lifetime of minutes, or sometimes as short as 5–10 seconds to manipulate the price up (more common)


• Places large asks ($2 million and up), for Bitcoin when he wants the price to go down, or stop going up (less common)


• Occasionally ‘Spoofy’ will allow orders deep in the orderbooks to remain for a few hours, usually $50–$100 below the current price. For example, during the recovery above $2,000, he had roughly 4,000 BTC of false orders in the $1,900 range that were unlikely to execute, and ultimately were never executed.

As noted above, spoofing is actually illegal - as ultimately the trader has no intention of ever executing the publicized trade - but as Bitcoin markets are largely unregulated, it’s a very common practice.

What is unusual in this case is the nearly unlimited bankroll that Spoofy has at his disposal: He regularly places orders approaching $60 million.

Even more unusual is that, as cointelegraph reports, most of Spoofy’s activity occurs on a single exchange: Bitfinex. This exchange came under fire earlier this spring when Wells Fargo cut off their banking ties. As a result, it’s virtually impossible to deposit fiat on Bitfinex without going through intermediaries.

Yet unlike most Bitfinex traders, Spoofy appears to have special privileges, and has massive sums of both fiat and Bitcoin at his disposal on that exchange, likely one of the only traders who does.

* * *

In addition to spoofing, "Spoofy" also engages in wash trading, or effectively trading with himself. As BitCrypto’ed points out in a recent blog post:

“Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down, and he’s got the coin… both USD, and Bitcoin, of course, to pull it off, and with impunity on Bitfinex.”

The BitCrypto’ed blog also describes Spoofy’s wash trades, when he trades with himself by either selling into his own buy orders or vice versa. Wash trading at high volumes can induce a frenzy of buying or selling, as other traders respond to the high trading volume. Spoofy can execute wash trades at very low cost, about $1,000 per million dollars of volume.

A single entity (entity could be a trader, or a group of traders), single handedly wash traded 24,000 Bitcoins in shorts. In order to do this, you would need to have at least 24,000 BTC on Bitfinex and the USD to buy them with.

When Bitfinex announced its plan to distribute Bitcoin Cash, it initially planned to distribute Bitcoin Cash to holders of short positions. Immediately following that announcement, a single trader short sold tens of thousands of Bitcoin all at once. It’s likely this trader was Spoofy himself, hoping to acquire as much Bitcoin Cash as possible.

The large number of shorts on Bitfinex also led many to believe that an epic short squeeze was coming, and many Bitcoin traders purchase coins in expectation of this. Suddenly, he “claimed” all of his own shorts, closing them using his own Bitcoin. The number of shorts dropped drastically, yet without affecting the price at all.

Bifinex itself admitted the manipulation on August 2, one day after the fork:

“After the methodology announcement on July 27th, several accounts began large-scale manipulation tactics in an attempt to obtain BCH tokens at the expense of exchange longs and lenders on the platform, causing the distribution coefficient to artificially plummet.

We have determined that this kind of manipulation?—?including wash trading and self-funding shorts?—?is in violation of Bitfinex’s terms of service. Those who intended to take unfair advantage of the circumstances surrounding the BCH distribution at the expense of other users have been sanctioned accordingly.”

Interestingly, BitCrypto"ed claims that Spoofy isn’t limited to just Bitcoin, and that shortly after this ‘trader’ was ‘sanctioned’ by Bitfinex, another interesting thing happened: ETCBTC shorts immediately disappeared on August 1.

Here we can see how the ETCBTC shorts simply vanished, from 60,000 ETC short, to a low of 93 ETC. But let’s not just look at ETCBTC, what about ETCUSD?

 

A giant middle finger. Notice the dramatic increase and decrease in longs with no effect on price.

I"m not sure what to make of these, but it calls into question the legitimacy of this data. The point I’m trying to make by showing the ETCBTC/ETCUSD margin pairs also engaging in very funny business at the same exact time, how are we supposed to know that the BTCUSD longs on Bitfinex are not also subject to this manipulation?

ETCBTC Shorts = Clear evidence of manipulation
ETCUSD Longs =Clear evidence of manipulation
BTCUSD Shorts = Clear evidence of manipulation (and admitted by Bitfinex)
BTCUSD Longs = BTCUSD Longs in terms of USD, has never been higher in Bitfinex’s history. See the green line.

It"s not just Bitfinex: Spoofy’s activity also drives crypto prices on other exchanges, as arbitrage takes place. Because BItcoin is so thinly traded, a single large “whale” can potentially move the entire market.

Just like in US stock markets where HFTs find instant price arbitrage opportunities, with the help of extensive spoofing, the same takes place in bitcoin exchange.

People underestimate how much exchanges follow each other. Manipulation on one exchange will affect prices on other exchanges. You have traders that watch all of the exchanges and if one exchange starts to pull ahead, they too buy on cheaper exchanges.

You don’t just have people, but you also have bots that will do the same thing, so price reactions can be immediate.

Just like equities. And while Spoofy is certainly exercising outsized control over the Bitcoin price, it is uncertain how much of an affect this is having across all the markets. The price is currently rising, having finally surmounted the $3,000 barrier. The only problem? Nobody knows how much of this increase is organic and sustainable, and how much is due to the market manipulation of Spoofy and others.

Finally, nobody knows who he is:  The identity of Spoofy remains a mystery. He may be i) a single trader, ii) a large OTC trading firm or group of colluding traders, iii) or even the Bitfinex management themselves. He sometimes seeks to drop Bitcoin price, and sometimes acts to increase it. One thing is certain: one single trader seems to have a "central bank"-like impact on the entire crypto market.

Dear Regulators: Do you Really Want to Stop Manipulation? Subpoena the Programmers

Why Do Silver and Gold Get Spoofed Lower? Because That"s Where the Stops Are.

via Soren K. Group for Marketslant.com

If you really want to root out manipulation, you must find intent. Intent is encoded in the algorithms themselves. The algos embody the conditions, tactics, and goals of the trader who designed them. They are his intent downloaded into a program. Do you really want to stop manipulation by predatory Algos? Then subpoena the programmers.

VBL EDIT- The  interview below with Daniela Cambone is merely one person"s opinion. But in a world where facts are the final arbiter of truth yet those facts are impossible to obtain, one must survive on his wits. That means using inductive means to asses a trading situation. We traders can only see the market"s behavior, not the intent behind it. Thus we trader types must decide to oppose, surf, or get out of the way of the market behavior we see. Professionals generally accept that and adapt. But the public is punished and taxed daily because of it.

When someone asks me WHY the market does what it does, that puts me in the position of guessing at intent of "Them". Markets are manipulated constantly. That does not mean that the Bullion dealers were "repressing Gold" or on a bearish mission. It just means that they, and the algorithms that succeeded them were finding the lower lying fruit in stops below the market, as opposed to above. Manipulation is agnostic directionally. And in a market like Silver where the shorts are better capitalized than the longs, then the stops closest are on the downside. The problem is as it always has been, poor market structure is exploited by those with the means to do so.

If you really want to root out manipulation, you must find intent. In the past INTENT was almost impossible to prove as it resided in the head of the trader spoofing the market. But now intent is very easy to prove.

Intent is encoded in the algorithms themselves. The algos embody the conditions, tactics, and goals of the trader who designed them. They are his intent downloaded into a program. Do you really want to stop manipulation by predatory Algos? Then subpoena the programmers. That is how they got Mike Coscia. Why would they not go after the bigger violators using this clear approach? You know why..

Subpoena the programmers and you lawyer types will get the 3rd leg of that "legal stool" you need to convict. But you have to want to first. Do you want to? I do not think so. And so the pricing mechanisms of our markets will shrink in importance. But that is just my opinion.

My first post on manipulation covering Warren Buffet"s 1997 Silver Squeeze was anonymous posted on zerohedge for fear of retribution by "them".  How messed  up is that? Maybe justice will be done someday

Here are some choice quotes from the interview:

• the silver and gold market have the majority of their stops lower, not higher – and that’s why the market goes lower.


•  it’s an algorithm, it’s not bullish or bearish  it’s just looking for the stops


• I’m going to come down firmly on the side that it is manipulation and it is unethical and it should stop   


• here’s the problem… the algorithms are now faster than the exchange’s ability to freshen up where its bids are


• it aint just Gold and Silver. The thinner the market, the bigger the spoof

When markets quickly move lower or experience a flash crash, the media is quick to point to a ‘fat finger.’ But, to veteran trader Vince Lanci, the problem is rooted in the technology running markets. ‘Manipulation does happen but what’s happening now is not a fat finger; that’s just a good headline,’ he told Kitco News. ‘It’s a combination of algorithm trading, institutional money and stop losses.’ To Lanci, algorithms are the real issue. ‘It’s an algorithm. It’s not bullish or bearish, it’s just looking for the stops,’ he said. ‘The silver and gold markets have the majority of their stops lower, not higher – and that’s why the market goes lower.’ Lanci, who tracks big market moves often as a contributor on Marketslant.com, said this type of price action can happen in any market. ‘I’m going to come down firmly on the side that it is manipulation, it is unethical and it should stop,’ he said. ‘But here’s the problem -- the algorithms are now faster than an exchange’s ability to freshen up where its bids are.’

 About Vince:

Vince Lanci has 27 years’ experience trading Commodity Derivatives. Retired from active trading in 2008, Vince now manages personal investments through his Echobay entity. He advises natural resource firms on market risk. Over the years, his expertise and testimony have been requested in energy, precious metals, and derivative fraud cases. Lanci is known for his passion in identifying unfairness in market structure and uneven playing fields. He is a frequent contributor to Zerohedge and Marketslant on such topics. Vince contributes to Bloomberg and Reuters finance articles as well. He continues to lead the Soren K. Group of writers on Marketslant.

vlanci@echobay.com

Mobile: (212) 223-1000

Read more by Soren K.Group

A Tale Of Two Gold Markets

Authored by James Rickards via The Daily Reckoning,

In the early morning hours of Monday, June 26, gold fell about 1%, from $1,254 per ounce to $1,242 per ounce, in a matter of seconds.

And that the equivalent of 1.8 million ounces of gold were sold at once. The 1.8 million ounce amount is equivalent to about 59 metric tons of gold. That’s about 2% of the entire gold mining production of the world for a full year. No one sells that amount of physical gold.

Besides, mining output is almost 100% pre-sold these days, meaning that if you wanted to buy that much gold directly from a mine, you couldn’t do it, because it’s already committed to fulfill existing contracts.

Forget about getting gold elsewhere too.

The largest gold mining country in the world, China, produces almost 500 metric tons per year. But China also prohibits the export of gold, so you can forget about sourcing physical gold from China.

Gold refiners won’t sell you any gold either. The largest refiners are working triple shifts around the clock to meet existing demand. Many refiners are having trouble sourcing gold in the form of doré from mines, scrap jewelry or existing bars to keep their refining operations going.

Gold is also leaving the custody of commercial banks and heading to nonbank storage at secure logistics providers such as Loomis and Brinks. These transfers do not change the total supply, but they do diminish the floating supply available to support the leveraged paper gold products offered by London Bullion Market Association dealer banks.

In effect, more and more paper gold is poised on top of on an inverted pyramid with less and less physical gold at the base.

All of this information about acute shortages of physical gold relative to demand is well documented. In addition, I have gathered a large body of firsthand confirmation of these facts.

In the past year I have visited gold vaults in the U.S., U.K., Australia and Switzerland. I have visited gold refineries in Switzerland. I have visited gold mining operations in Canada and the U.S., and I have met with major bank and nonbank gold dealers in the U.S., U.K., Canada and China.

Everywhere the story is the same. Physical gold is scarce, difficult to source and already spoken for when you can find it. Meanwhile, demand for physical gold remains robust.

I met with the heads of gold dealing for two of the largest banks in China, ICBC and UOB. They both told me that demand for physical gold among Chinese retail buyers is strong, despite some reports to the contrary.

Your correspondent standing on the Bund, a waterfront thoroughfare along the Huangpu River in Shanghai, China, during a recent visit. Behind me is the original headquarters building of the Hongkong and Shanghai Banking Corp. (now HSBC), built in 1923. While in Shanghai, I met with the heads of gold trading for two of the largest banks doing business there, ICBC and UOB. Both reported that supplies of physical gold were tight and demand remains high despite some reports to the contrary.

A gold refiner in Switzerland told me, “Jim, if you called to buy gold and I did not know you personally, I would not even return the call. We have none available.”

With that as background to the physical supply-and-demand situation, why is the price of gold not soaring? That’s how markets usually respond to tightness in supply.

A higher gold price would encourage more mining (although new mines take five–seven years to actually produce gold), which would increase supply and equilibrate markets at a new higher price point.

The answer is that there really is no true market for gold, just a rigged game consisting of physical gold and paper gold trading side by side as if they were one and the same. They’re not.

The June 26 flash crash in gold is a good case in point. If I sold 59 tons of physical gold short and had to make good delivery, I couldn’t do it, nor could a bullion bank or dealer. Given the situation I described, you’d be lucky to source 5 tons in 30 days; even that would be difficult for anyone other than JPMorgan or HSBC. I would ultimately default on the contract and face a lawsuit for contractual damages and possible fraud charges.

But in the paper gold world, it’s not a problem.

You just pick up the phone, put the order in to your broker, post a relatively small margin amount (maybe $100 million on a $2 billion short sale, or 5% of the notional contract value) and you’re done. You’ve just destroyed the price of gold with no actual gold involved.

Futures markets exist ostensibly for hedging purposes, but it’s difficult to see why any commercial player would need to hedge 56 tons all at once. (By the way, orders of that size are usually “worked” over days or weeks. That avoids exactly the kind of market impact seen in this case, which hurts the hedging party because they get a lower price.)

Futures markets also allow speculation, which is considered to add liquidity and enable legitimate price discovery. But there’s a fine line between legitimate speculation and outright manipulation, which is fraudulent.

The difference between legitimate speculation and fraudulent manipulation is often difficult to prove, because it requires some finding of “intent” in the mind of the manipulator. That can be elusive unless there is a smoking gun email or other written evidence.

In some ways, this doesn’t matter, because regulators have shown no appetite to enforce the law. The message to manipulators is that this is a big boy’s market and players can do whatever they want as long as it’s not too blatant.

There is a lot of speculation about the actual motive of the flash crash paper gold short seller. Was this a so-called “fat finger” trade where the trader made a mistake by entering the wrong quantity or pushing the wrong button? That’s possible, but a more nefarious explanation comes to mind.

Paper gold trades not only as futures and bank forwards, but also as options on futures. The flash crash happened the day before an important expiration date in the options market.

Was a seller of call options at, say, $1,245 per ounce trying to sink the price the day before expiration in order to avoid a $10 per contract loss? That’s entirely possible, even plausible. We’ll probably never know, because enforcement in this area is almost nonexistent.

One of the most frequently asked questions by gold investors is, “Why should I invest in gold if the price is just going to get slammed by paper gold sellers with no actual gold? What’s the point?”

More broadly, where does the price of gold go from here?

The most important signal is that gold’s uptrend, which began on Dec. 15, 2016, remains intact. Even after the flash crash, gold remains just a bit below the previous low of $1,210 per ounce on May 10, 2017. That means gold is set for a rally above $1,300 per ounce, which would exceed the prior high of $1,293 per ounce on June 6.

The next powerful indication is the marked slowing of the U.S. economy in reaction to rate tightening by the Fed. This is showing up in auto sales, retail sales, disinflation, lower labor force participation and many other indicators.

The result of this slowing will be that the Fed will have to reverse course and use “forward guidance” to signal that they will not hike rates in September. That’s a form of ease that will lower the dollar index and raise the dollar price of gold.

Finally, investors can take comfort from the fact that all manipulations fail in the long run. Whether it’s the “gold corner” of 1869, the “gold pool” of 1968, Kissinger’s secret “gold dump” of the late 1970s, or “Brown’s bottom” (when the U.K. sold most of its gold at 30-year low prices) of 1999, or the more recent gold games on the Comex, all manipulations fail. Gold prices always find their way higher, because paper currencies always lose value over time.

The key response functions to manipulation are patience, confidence in the long-run path of gold and nimbleness in stepping up to buy gold at interim lows when manipulation gets out of hand, as it just did.

The gold rally that began on Dec. 15, 2016, is poised to continue despite the trauma of the flash crash. The crash represents a gift to investors. We now have a better entry point for what will still be much higher gold prices later this year.

Sterling 'Risk' Spikes To Post-Brexit Highs Ahead Of UK Election

The premium to bet on the pound’s volatility in the next two weeks relative to one-month wagers has surged to the highest level since the aftermath of the Brexit vote ahead of next week’s U.K. snap election.

As Bloomberg notes, even though polls suggest Prime Minister Theresa May remains on track to increase her parliamentary majority...

But, so-called butterfly options...

Show the pound’s moves in the next two weeks could be the largest since the currency’s flash crash in October, when it dropped 6 percent in just one minute.

Gold Crashes To 5 Month Lows As 'Someone' Dumps Over $10 Billion (On A Bond Market Holiday)

Over 85,000 gold futures contracts (over $10 billion) just traded as gold plunged from $1260 to $1230 as US equity markets opened. This is the worst 7-day run for gold since November as Dec rate hikes were jawboned more likely.

Down 5 days in a row, today"s crash has dumped the precious metal to its lowest price since June...

Of course, this makes perfect sense, as EM FX collapses, inflation expectations spike most in years, and Trump"s debt-funded fiscal spending plan means more QE.