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Price Discovery – now a realtime computer result!

October 29, 2014

What we need to understand is the nature of price discovery today (given that computers now produce our prices). When we all used physical money units (paper notes and coins) to create our prices we could witness price discovery from actual negotiations between people. Today, however, price discovery is revealed by computer operations. Speed of light computer digits now change prices in realtime for most goods/assets/collateral. Prices of commodities like silver, gold, and oil are created mostly via computer algorithms (not people). Machines now create most of our prices and we witness this clearly in the silver/gold markets in realtime. Machine driven robots (programmed with algorithms) trade a commodity like silver on the electronic futures markets. We can follow the moment by moment changes in price on our computer screen…but we do not know who/what is moving these prices in realtime. Algorithms work behind the scenes. Look at this chart of silver which comes from

Live 24 hours silver chart [ Kitco Inc. ]

The green lines show how computer algorithms change the realtime price of silver from moment to moment on our electronic markets. Silver reached $17.30/ounce at 1 p.m. (on the NY Globex market) and then the price was slammed down to $17.05 within minutes. How is this accomplished? Pre-programmed algorithms can accomplish this result. Human beings no longer create our price discovery for the commodity called silver. Spot prices and trading prices are now revealed from prior computer operations!

It seems like most financial pundits still assume that price discovery is a human activity (and this was true in the recent past but not today). They also assume that real prices emerge from realtime negotiations between live human buyers and sellers who think about the transaction being negotiated. This is often not the situation today. Computers now create our prices and manipulation of prices via algorithms and robots can produce prices which have no relation to historical reality (rational logic). Prices should be viewed as machine driven results which are manipulated by computer programs. And today our computers use algorithms for most of these manipulations. Algorithms operate behind the scenes and no one knows what logic is programmed into an algorithm.

Live New York Silver Chart [ Kitco Inc. ]

This chart represents realtime prices which emerge from our computer driven algorithms. Practically all of our prices now derive from electronic trading. The default methodology for trading is now algorithmic trading. The logic within an algorithm may not be equivalent to human logic or rationality. The objective of an algorithm is to manipulate transactions so that profits develop from minor price changes. Prices now are all that traders desire to follow. Naked shorts can produce a sharp drop in the silver price even though human demand for silver may be increasing. This also happens with the gold price! Supply and Demand are now obsolete measures for determining our silver/gold prices. Computer manipulations are real!

Many pundits also assume that prices result from contracts where a real physical commodity is being exchanged between a buyer and a seller. This, however, is not always the case today for many transactions on the Stock market, the Futures market, and the Options markets. Our computers, programmed with an algorithm and operating at near the speed of light, can purchase and dump contracts (in milliseconds) where no physical good is being delivered. I call these phantom contracts. Computers can also cancel a transaction with no delivery involved. Our speed of light transactions produce artificial prices which may not reflect human logic or rationality. Since April of 2011 the price of silver has declined from $48 to $17. Why? Supply and Demand from humans did not create this change! In fact, I am buying silver today because it is so cheap due to all these computer manipulations!

Algorithmic trading creates our prices in realtime. Price discovery is now a computer driven result!

Today, we have contracts called ‘naked shorts’ and/or ‘uncovered shorts’ which produce artificial prices for silver and gold. A computer algorithm can be working in the background within a trading room and produce changes in a commodity price by dumping thousands of phantom contracts on an electronic market (like the Globex) to slam the price of silver in milliseconds. This slam is not representative of human negotiations where a physical commodity is being exchanged between buyer and seller. This slam is actually a machine driven result derived from a mathematical algorithm and where no delivery is being done.  Paul Craig Roberts calls these contracts ‘uncovered’ contracts. The computer prices emerging from an algorithm which sells short (uncovered contracts) does not reflect human negotiated transactions. This is pure price manipulation!

Traders use algorithms (also called automated trading) to execute trades (affecting prices) in realtime! 

I now have an APP on my smart phone where I can follow the algorithmic trading of silver and gold in realtime. The above chart is typical of what I observe on my smart phone screen. Silver prices are changing continually in realtime but not being allowed to fluctuate out of a narrow band (range). It seems obvious that this price is being monitored and controlled by a computer algorithm. It is unlikely that this monitoring and control is being done by a private trader (algorithm)…as why would a private trader desire that silver be contained within a narrow band (range)? It is much more likely that our elite traders at the Fed or the Treasury have created an algorithm for this task. Manipulating the price of silver and gold could be an official policy so that our Cyber Dollar is viewed as stable and viable. This is my sense and also that of many others who watch our manipulated markets!

Is there such an entity as the Plunge Protection Team? David Stockman says it is the FOMC. Others say it is the Fed, SEC, and the Treasury? Others have suggested that it may be the Exchange Stabilization Fund (within our Treasury)? Who can prove any of this without being within the group think operation?

The history of money is based on a foundation of gold and silver. If these prices are kept down and sentiment for these metals is suppressed, it makes sense that traders, investors, and the public will buy into the official Cyber Dollar as a viable and stable monetary unit. My sense is that our elite policymakers at the Fed and/or the Treasury are behind the manipulation of prices (of silver/gold) and also the bubbles in our stock, bond, and derivative markets. Think ‘algorithms’ and ‘computer’ manipulations! Give this scenario some reflection and then watch the realtime prices of silver and gold on your computer screen. Observe the bubbles in our Stock markets (and all the global stock exchanges). Can computers monitor and control these markets to some degree? All this could now be accomplished with ALGORITHMS AND ROBOTS and no one would know who is programming these algorithms. We live within a machine driven global marketplace. Computers rule (markets are manipulated). Policymakers could be behind some of these manipulations! Enjoy! I am:

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