Does Heisenberg's uncertainty principle shed light on "manipulation" of the London Gold Fix? Or is it the other way around? WHEN Werner Heisenberg looked at his brand new quantum formulae in 1927, writes Paul Tustain, founder and CEO of BullionVault, he noticed something weird. The world of very small spaces and particles is ruled by matrix mechanics, but as you may remember from your school mathematics, in matrix multiplication (A * B) * C is not the same as A * (B * C). What Heisenberg saw was that because of the difference in the two matrix products there would always be uncertainty as to key physical properties of a particle. His discovery forbids a particle from having both precisely defined motion and precisely defined position at the same time. Spotting this earned Heisenberg a Nobel prize, and a lifetime of being widely misunderstood. The rest of us have a very deep seated 'common-sense' view of spacetime and particles, and almost all of us reject the subtle complexity of the 'Uncertainty Principle'. Indeed I am prepared to bet that if you are here reading about it for the first time you are mentally rejecting it. "Of course", you will be thinking, "whether we can measure it or not, a particle obviously has a particular position and a particular speed." Alas you would be wrong. But don't beat yourself up about it because you are in good company. Even Albert Einstein was on your side for a while. In physics you can pin down individual quantities very precisely, but by knowing one quantity exactly you will automatically give the particle freedom to be uncertain in another. Woe betide any physicist who interpolates between observations to state as fact something he didn't specifically measure, because physical particles do not do predictable things when they are unmeasured; they appear to spend their unobserved lives weighing up the choices of where physics allows them to be found next, and then pressing the hyperspace button to get there whenever somebody looks. If you took to examining particle paths between observations the best route map you could draw to describe the motion of an unmeasured particle would look something like this :- The diagram shows how we located the particle precisely at point A, and again at point B. But in being so precise about its location at an instant of time we made its motion uncertain. At time A, it might have been going up, or down, there is no answer. In making our precise measurement of position at instant A (and B) we actually denied the particle a definitive up/down motion. It's weird, but that is how particles work in spacetime – it really is. Nevertheless a good physicist will be able to perform certain quantum calculations, and she will be able to give us a sense of where our particle might have been found, if we had looked. She will be able to calculate that if we were to set everything up the same way and make hundreds of additional measurements at Time T, then the particle would be found in the various ranges shown on the blue dotted line on the picture, with the various probabilities shown. Even many physicists find it unsatisfactory that the most nature allows us to say about where the particle was when we weren't looking is basically "probably about here". But there it is. Without an observation there was no single explicit position at Time T, because the phenomenon of unmeasured position did not properly exist except in our own mental models. Unmeasured position is smoothed out into a fuzzy realm of possibilities. The Gold Fix The situation of a particle's motion and position bears a striking similarity to price. Let's have a look at another picture. The blue dots are 'quotes' from a market. Someone from Bloomberg has tracked bankers' gold price quotes, each of which is here represented as a blue spot. Bloomberg decided to be helpful to the rest of us, and they filled in the gaps between the points with a solid line. Then they sold it to us as a gold price chart – a track of the position of price, through time. A few years ago, before derivatives were invented, the rest of us would have taken that plotted line with a pinch of salt. We always knew it was an approximation, and not a very good one either, because when we waited to see the price reporting at the end of the day we could see a whole load of real gold deals (here the green dots) obstinately refusing to position themselves on Bloomberg's line. We did not care much, because none of us who worked in real markets ever thought for one moment that anyone would start to treat the lines interpolated by Bloomberg as something real. They were a useful visualisation – that was all. It was only later, when financial engineers started building products that were valued by reference to that line, and when people started making profits, or losing, depending on where Bloomberg drew their line, that investors started attaching significantly more weight to the line itself than to the reality of the reported deal prices. Is the gold price uncertain too? Okay, so I am clearly drawing a parallel. Price charts and particle route maps are doing something quite similar. But let's take it a stage further. Let's try doing what Heisenberg did, and make the bold assertion that there is no price between the data points of trades, just a realm of possibilities. The derivatives engineers, and even a few of the gold bugs are going to go nuts with this, but it stands up to some pretty detailed scrutiny. For a start the price that gets printed by Bloomberg is without size. If the bullion banker were to be asked a real price, by a real trader, the banker's first question would be "what is the size?" He has to know if he is quoting for a $200 deal or a $200 million dollar deal, because the prices are completely different! This gives a third dimension to the price, one which any spot price chart always ignores. At any given point in time the price of anything is a function of the amount of it you want to buy or sell. Unlike quantum particles this is not difficult concept to grasp. If I were a greengrocer, and you asked me for one banana, I'd probably charge you 20 pence. If you asked me for 10, I might give you a discount, and sell for £1.90 (19p each). If you asked me for 500 I might charge you a premium, because I'd have to get in the van and go and purchase a lot more bananas – so maybe £110 (22p each). But if you asked me for 1,000,000 there is no price. I don't want to sell you 1,000,000 bananas because I wouldn't know where to get them, and I certainly don't want to spend my week in the van hunting them down and paying ever larger prices for the diminishing stock! As you can see the price varies according to size. Once you introduce this extra dimension to the price chart, so as to get the real feel for where the trading price is, the single line of Bloomberg starts to look like a gross over-simplification. Because not only is there uncertainty in the vertical momentum of the price between two measured points (trades) but also there is a completely different answer depending on the size. So instead of a line progressing from last quote to next quote the reality is that there is a very large volume of three dimensional economic space between the points, and, with different probabilities, the next trading price could be any point within that volume. All in all it seems to me that there is a very good case for saying that in the absence of a trade there is no such thing as price. Anyone who seeks to know a price without the hard experiment of executing a trade is deluding themselves into creating a phenomenon which does not really exist. Price is an attribute of a specific trade. It occurs meaningfully only at points in the economic continuum where an exchange happens, and it depends on the individual circumstances, reasons and emotional states of two experimenters (sorry, traders) who each foresee the price subsequently moving in opposite directions. So price is not smoothly variable, but point-like, quantised, and a generator of uncertainty; and everything between real trades is probabilistic guesswork. Is Gold fixed? If I were to criticise the Gold Fix I would certainly concede that it is rather stupidly named. Also in the era of Chinese walls – rules which insist colleagues do not tell each other what their common clients are doing – there is something unusual in allowing bank principals to know their own internal customer order book. However in my opinion this oddity is rather elegantly offset by the fact that the Gold Fix allows another bank principal to steal those orders simply by offering a better price during the auction. I believe this system is much more robust than Chinese walls, because it relies on natural competition rather than self-imposed discipline. Also two other powerful points jump out for comment:- The Gold Fix is a real trading price. It is not a sample, like LIBOR, and it is not a chart, like the Bloomberg spot gold ticker. It is a price at which a very large number of buyers and sellers chose to deal, and this makes it real. It was dealt in open competition in very large size, positively swamping the sizes of the individual bullion bank quotes on the Bloomberg ticker. As I explained above this size gives it a right to be different. Besides, if the sellers thought they were getting a bad deal day after day wouldn't they simply deal on the spot market? Or on Comex? There is nothing stopping them. Forgive me, but I don't really care much in any case. There remain quite a large number of people who are wedded to gold price conspiracy theories. Many of them buy paper gold (gold futures) and then grumble that sellers of paper gold exist. In my opinion they perfectly match each other's requirement! Meanwhile not one person who has bought gold, to take delivery, has only got paper. All the sellers were able to deliver real gold. That makes a concerted price suppression story – through shorting – very difficult to swallow. More interesting than the Gold Fix But there is still unfinished business here, because the physics element of this story is far more interesting than the gold element. Could it be that a run-of-the-mill financial spat begins to show us a route to solving the central riddle of quantum physics? Now that really would be something. Since quantum physics first arrived 87 years ago its application has been stupendously successful, but no-one has been able to explain its results in a way we can grasp and call 'reality'. Physicists remain stumped when it comes to describing the weird world they see through their simplest experiments. In the absence of anything better we all fall back, a bit lazily, into the default human mental model of thinking of stuff as being somewhere and moving somewhere smoothly, rather than in jerks from point to point. We have taken to thinking – much as conspiracy theorists do when they look at price charts – that unmeasured particles have real position and real motion, even when they are isolated from the rest of our universe and no-one is looking. But this perfectly natural, common sense interpretation leaves science at an impasse. Our mental model and the experimental facts are in fundamental disagreement with each other about how stuff really is. Physicists have been wringing their hands trying to solve this. They want to explain a reality under quantum physics in a way which does not make the act of measurement special. They want reality to be permanent, whether or not they are looking, and they have come up with some truly zany models ranging from 'there is no reality' to 'there are countless zillions of realities, and entire universes are created every nano-second to cope with all the quantum possibilities'. I am not kidding. These are both pretty standard models of quantum reality which physicists are clinging to. Yet – and this is the amazing thing – through analysing price at the Gold Fix we can actually see a workable metaphor for quantum experiments, and that really excites me. It's as if the quantum world is an incredibly fast moving market, heaving with tiny exchanges, where each exchange produces an instant of perfect precision in some physical attribute or other, enabling the countless trillions of particle events in the observable universe to map themselves, with respect to each other, into the unambiguous history of our spacetime. I have read lots of physics books, and not understood many of them, but by sitting in my office and thinking about gold prices I can for the first time start to see how something which appears to be deeply real and continuous is in fact point-like, and fuzzy between the points. I can explain, and in an understandable way to anyone who knows markets, that between one trade and the next price is undefined, uncertain and unreal. We don't know exactly where it is, or if it's moving up or down. All we can do is copy the quantum physicists and make probabilistic guesses until the next trade. Is there something here the physicists could learn from us? After all, so many physics laboratories have lost their brightest research stars to the quant funds. Perhaps it's time the London bullion market offered the labs some of our Gold Fix dealers, on sabbatical, of course.
Gold Prices Drop Weekly Gain as US Jobs Data "Defy Cold Weather", Moscow Rebukes EU Over Ukraine, Shanghai Premium Ends Negative
GOLD PRICES fell sharply Friday lunchtime in London, dropping 1.1% inside 5 minutes of new data showing US jobs hiring was much stronger than forecast in February. Losing another 0.5% over the next hour, gold prices dropped three-quarters of the week's earlier $27 gain per ounce, finally bouncing higher from $1330. "Cold weather is likely to deliver another poor payroll number," Deutsche Bank analysts said ahead of the official Non-Farm jobs report, "and sustain the strength in the gold price." "That these numbers came even while weather was bad shows the underlying strength of the US economy," the BBC quotes Scotia Capital FX strategist Camilla Sutton. US Treasury bonds fell after the US jobs data – driving 10-year rates up 6 basis-points to a 3-week high at 2.80% – and the US Dollar index rallied from new 4-month lows on the currency market. The Euro, having been flat at $1.3725 mid-week, and then flat at $1.3850 after Thursday's weaker-than-expected US productivity and factory orders data, today rose above $1.3900 – its highest level since Oct.2011 – before dropping half-a-cent. Euro gold prices gave back the last of this week's earlier 2.5% gains, falling back to €962 per ounce – a level first achieved in May 2010 as the Eurozone debt crisis worsened. "Russia will not accept...sanctions and threats" from the European Union, Moscow said today, responding to trade and financial blocks proposed by Brussels over the Ukraine crisis. "The proposed referendum on the future of Crimea would violate the Ukrainian constitution and violate international law," said US president Obama late Thursday, a comment repeated Friday by Ukraine's interim president Turchinov. Destroyer USS Truxton today entered the Black Sea, reportedly heading for exercises with the Romanian navy. Any "positive effect on the gold price from an escalation in geopolitical risk," Deutsche Bank's earlier note said, "typically fades rapidly. "However, if there were international efforts to impose sanctions on Russia, then this could start to impact the [platinum group] sector, and specifically palladium." With strikes at South Africa's platinum mines likely to start impacting global supplies, according to London analysts, "Platinum is holding at the recent breakout highs and maintains a bullish 'reverse head & shoulders' base," reckons technical analysis from Credit Suisse. The gold price this week "rallied back to test trendline resistance from May 2013," the Swiss investment and bullion bank said, pointing to $1352. "The risks are for an eventual extension through [there] to challenge targets at $1362/66" – the gold price high of last October. Meantime in Asia, Shanghai gold premiums to the international price ended the week sharply negative, more than $3 per ounce below London settlement. "It has been a mixed week," Reuters quotes a Singapore gold bullion dealer, with clients selling above $1350 only to buy back around $1330. A local retailer quoted separately says consumer demand tailed off when spot gold prices broke above $1320 late last month. Some consumers "were selling scrap" says the news-wire.
The decision of ECB sparked a rally in the euro versus the dollar, itshighest since late September. Comex gold for March delivery closed 0.86% higher at US$ 1351.7 on Thursday.Gold has been up on high tensions between the West and Russia over Ukraine
UK interest rates have never been lower. But they have been stuck low for longer. Much longer... FIVE YEARS ago, writes Adrian Ash at BullionVault, "It is fair to say nobody predicted this record low [in UK interes rates] would last as long as it has," reckons the Economic Research Council. Not so. History said otherwise and very loudly. We coughed it too... As you can see on that chart, the last 5 years paid the lowest rate since the Bank of England was founded in 1694. The previous floor was 2%. But this hasn't been the longest stretch of inactivity. That came in the 18th century, when the Court left Bank Rate at 5% for 100 years. Bondholders ruled the country, after all. Being paid in gold, cash needed a decent rate of interest to deter savers from swapping it for bullion, too. More pertinent, the Great Depression of the 1930s saw the Old Lady throw Bank Rate into the bin for 20 years. Boxing policy into that corner...way down at 2%...meant impotence was the only choice until sharply rising inflation forced the Bank from its stupor. But too little, too late. The collapse of Sterling and the 1970s' wipeout were already baked into the crust. What the Bank didn't do during the 18th century, the Great Depression, nor the 1970s was print enough money to buy one-third of all UK government bonds in issue. And seeing how the Bank of England has now imagined £375bn of QE cash into reality since 2009, what's most remarkable about the last 5 years is that gold and silver did so much better before money-printing and near-zero rates began. Two thoughts... First, precious metals offer savers and investors financial insurance. Waiting until your house has been flooded makes buying cover expensive, if not impossible. Prudence acts early. Gold and silver remain the best performing assets over the last decade by a country mile over. (Note that back in 2004 the Bank of England had just slashed rates to 3.5%...a half-century low...to stem the DotCom Crash in the stock market. Cheap money didn't begin in 2009.) Second, QE hasn't been inflationary. Not yet. But currently stuck at Threadneedle Street as banking reserves, those frozen billions will melt back into the economy, either written off as "debt relief" to the Treasury...or forced into reality at maturity. Savers and investors wanting to insure against that flood of financial meltwater might want to get in a few sandbags early. Avoid the rush.
Gold Price "Will Probably Test $1400" as Crimea Moves to Quit Ukraine, US Fed Sees "Many, Many Years" of Ultra-Low Rates
GOLD PRICE trading in London kept bullion prices in a 2-day range between $1330 and $1340 per ounce Thursday morning, while Ukraine's Crimea crisis continued to dominate headlines ahead of tomorrow's much-awaited US jobs data. Trading some 1.5% below Monday's new 4-month high, the gold price fell for Euro investors, dipping beneath €970 as the single currency rose after ECB chief Mario Draghi reaffirmed a commitment to ultra-low rates. Members of parliament in the Crimea today voted to put joining Russia to a referendum on March 16th – a move that Reuters called a "dramatic escalation". Hürriyet Daily News says the Turkish authorities "have given permission to a US Navy warship to pass through the Bosphorus within the next two days." militarized. Although the situation is likely to cool short term, "Don't be surprised to wake up one morning to hear that there is shooting going on," said Bill O'Neill of Logic Advisors yesterday, taking part in Bullionvault's live Ukraine & Gold Price Panel yesterday. The gold price "will probably see a test of $1400 over the next 3-4 months," O'Neill believes. Agreeing on that near-term test, "Support for gold at $1280 will hold," added 30-year commodities trader and author Andy Hecht. Over in Shanghai meantime, China gold prices today went to a premium for the first time this week to the world's benchmark of London settlement. Rising to $1.40 per ounce, premiums for spot bullion on the Shanghai Gold Exchange peaked at $50 last summer. They were last negative for almost a week in February 2012. "Feedback from the ground suggests that underlying [Asian] physical demand is currently soft," says a note from Swiss investment and bullion bank UBS. But "long-term demand support from Asian nominal income growth," counters a new note from Asian brokerage Nomura, "[plus] an evolving post-QE macroeconomic environment and lower disinvestment potential move our gold equilibrium model." Raising its forecast for gold prices to average $1335 this year, Nomura also hikes its silver price forecast, up by 32% to $21.52. Silver was trading today at $21.20 per ounce, just shy of last week's finish. "Last year's shift in the gold market was rapid and the price response substantial," Nomura explains, with a reduction in the US central bank's monthly QE money creation scheme flagged from spring 2013. With US interest rates now held at zero since end-2008, Federal Reserve member and so-called "dove" John Williams of the San Fran Fed told CNBC yesterday that "it'll be many, many years" before the US returns to pre-crisis GDP growth. "I'm very worried," added Charles Plosser of the Philadelphia Fed this morning, "about the unintended consequences of all this [QE and now tapering] action. Because we've never been here before." The Bank of England today voted to keep its key interest rate at a record low of 0.5% for the 60th month running – the longest "no change" decision since the UK's central bank "threw interest rates in the bin" from 1932 to 1954, in the words of monetary historian Glyn Davies. Eurozone policy-makers also voted today to keep their rates unchanged at the record low of 0.25% reached last October.
Turkey's total silver imports during January- February period this year reached 28.76 tons, rose 107.9% compared to 13.83 tons in the same period last year.
Bloomberg reports that the London gold fix, the benchmark used by miners, jewellers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say. Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behaviour and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper. Read more http://www.bloomberg.com/news/2014-02-28/gold-fix-study-shows-signs-of-decade-of-bank-manipulation.html We already read about that kind of issue and one needs to be extremely careful when investing some money … What is not being manipulated nowadays ? Today in The Economist, you can read on the cover page ‘What’s gone wrong with Democracy? and How to revive it ? If you want to know more, you need to read a 6 page essay. Quite interesting reading. Main lines : lack of trust ? Democratic disillusion ? or rather the financial crisis has starkly exposed the unsustainability of debt financed democracy.We talk about democracy but what about the country leader ? Let’s have a thought for Ukraine. Their president run away, leaving the country in such a poor state. He managed to manipulate so many people and got the country bankrupt. So, who shall we trust ? Ukraine citizens are left hardly with nothing but debts. Before this happens in other countries like ours, let’s see what we can do. There are values in which we can trust and these are gold, silver, diamonds among others. Physical tangible values that can be stored in a safe place outside the banking system. When Trust and Manipulation just make one … was first posted on March 6, 2014 at 6:33 am.
Gold Price Spikes on Weak US Jobs Data as US-Russia Meet Over Ukraine, Holds Tight Range as China Faces "Bear Stearns Moment"
The GOLD PRICE spiked $5 per ounce from a tight range around $1335 per ounce Wednesday lunchtime in London, as weaker-than-expected US jobs data saw the Dollar drop sharply on the currency markets. The Dollar then recovered however against the Euro, and the gold price edged lower to trade 1.3% below Monday's 4-month highs, hit after the weekend's sudden escalation of Ukraine-Russia tensions. Wholesale silver bars tracked the gold price spike and fall Wednesday morning, making a shallow recovery above last week's closing level of $21.22. Palladium jumped 4% from Tuesday to 11-month highs as analysts said possible trade sanctions over Russia's bluntly-denied troop movements in Ukraine's Crimea region may threaten global supplies. US secretary of state John Kerry was due Wednesday to meet Russian foreign minister Sergei Lavrov in Paris. Ahead of Friday's official non-farm payrolls report, today's private-sector ADP data said US firms hired 139,000 workers net in February, more than January but below analyst forecasts. "The gold price has found a near-term cap at the trendline from May 2013 at 1355," says a technical analysis from Credit Suisse, "and is close to our...chart objectives at 1362/66." But the "removal of 1307/02 [would be] needed to signal a deeper setback." "There’s scope," agrees fellow Swiss bullion bank UBS, "for more upside in the near-term." The gold price "looks set to test the major resistance at 1361.93, the October 2013 high." "Support from the uptrend comes in at 1313," says bullion bank Scotia Mocatta's latest technical analysis, also putting nearby resistance around the $1360 level. "We are bullish gold, looking for a full retracement to the $1433 high from [August] 2013." Today in China, the No.1 gold consumer nation, wholesale discounts to the global gold price eased back to 21c per ounce from Tuesday's $2.80, suggesting an improvement in local demand over supply. But trading volumes on the Shanghai Gold Exchange fell again, dropping to half Monday's 3-month high. Warning of a "Bear Stearns moment" in China's corporate bond market, analysts at Bank of America "doubt that the financial system in China will experience a liquidity crunch immediately...but the chain reaction will probably start" with a likely default by solar-cell mnufacturer Shanghai Chaori Solar Energy Science & Technology Co. o meet $15 million-worth of interest payments on Friday. Now valued at $4 trillion, China's publicly-traded debt market hasn't suffered any defaults since the People's Bank began regulating it in 1997, says Bloomberg. Last month saw China's first "wealth management product" default in what's become a $1.8 trillion industry. From the mid-2007 failure of two Bear Stearns' hedge funds holding subprime mortgage bonds, the global financial crisis took another year to reach the collapse of Lehman Brothers and the tax-funded bail-out of AIG, its counterparties, and much of the Western banking sector.