Gold and silver spot prices barely regained their important psychological levels on Friday and are hovering in that area as we enter the new week. Silver is at $20/ounce on Monday morning, and gold is once again above $1,300/ounce.
Prices moved mostly to the downside last week but rebounded somewhat following Friday's disappointing jobs report. Investors appear to have once again interpreted the bad news for the economy as good news for contra-dollar assets such as precious metals.
Stimulus-addicted markets are likely to get another “fix” from the Fed. However, overbought equities may have priced in more than the Fed can deliver in terms of boosting actual corporate earnings. Stocks fell sharply on Friday.
Perhaps the recent scrutiny of high-frequency trading (HFT) is making investors nervous. Based on the sheer volume of HFT, any move to limit or restrict this type of trading is bound to have profound impacts on the markets. Eroding investor confidence in these electronic markets inures to the benefit of tangible assets, including physical precious metals.
Meanwhile, there is evidence the broad stock market is in a topping pattern, particularly small-cap stocks. In 2013, the NASDAQ went on a tear, with broad participation. This year, the NASDAQ has struggled and a majority of the largest 100 stocks are convincingly down.
Confidence in Financial Assets Threatened
by Automated Market Rigging
High-frequency trading firms have been flying under the radar for most of their industry's short life. Except for the 2010 “Flash Crash” and a handful of less well-publicized market trading “anomalies,” HFT somehow managed to avoid significant scrutiny. The public doesn't realize that complex computer algorithms now execute the majority of all trades, not individual investors and brokers making buy and sell decisions.
In a nutshell, high-frequency trading is a license to steal from average investors.
Wall Street insiders buy bleeding-edge hardware and hire the best and brightest programmers to build advanced trading algorithms that can submit opportunistic trades immediately before slower platforms can do so. They use influence and pay extraordinary fees to co-locate their supercomputers on the same physical premises which house the computers running the exchanges. Then they sit back and watch profits roll in -- front running trades from the rest of us who expected the electronic markets would provide a level playing field.
HFT is neither the first nor the last time a Wall Street “innovation” turns out to be nothing but an elaborate scheme for siphoning profits at the expense of the unsuspecting public.
And it isn't the only example of greed metastasizing to the point it places the larger financial system at risk. Only recently, the focus was on arcane derivatives, such as CDOs, which packaged up “liar loans” and sold them as high-grade debt. The big banks employed hordes of “geniuses” in that endeavor. If only the talent had been put to work on something productive!
Someday -- we hope soon -- investors will reach the limit of their patience and demand more honest markets by refusing to play in any more rigged games, whether it's the stock market or the highly leveraged futures markets where prices of commodities can be controlled by a few large holders of concentrated positions.
And there is no better way for investors to take their ball and go home than an investment in physical bullion which is derived in finite quantities from the earth – not from computer programs.
Potential Market-Moving News This Week
This week will be quiet in terms of scheduled releases. Continued stock market weakness could help spark safe-haven inflows into precious metals.
- Wednesday, April 9th - FOMC Minutes. The minutes from the FOMC meeting in March will be released. Investors will parse them carefully with the question of “tapering” on their minds. How committed is the Fed to wind down stimulus? Do they intend to raise interest rates by next year? Or are there hints the Committee is wavering?
- Friday, April 11th - Producer Price Index. The index is expected to confirm price inflation remains well in hand
About the Author:
Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.