The great manipulation continues

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  • Is this ‘gold’ better than gold?

In yesterday’s Port Phillip Insider, we highlighted the ‘Great Manipulation’ of the markets undertaken by the world’s central banks.

Overnight, the Great Manipulation continued. As reported by Bloomberg:

Federal Reserve Governor Lael Brainard has just released a post-crisis monetary policy manifesto aimed at defusing any urgency to raise interest rates. For this month at least, the Federal Open Market Committee might agree.

Brainard, in a speech Monday in Chicago, says this means there’s no reason to rush to raise rates because right now there seems little need to lean against an overshoot of inflation or employment. It’s an argument that will probably be persuasive when the FOMC meets on Sept. 20-21. Her remarks are the last ones in public from a Fed official before the central bank enters its pre-meeting quiet period.

After this nifty bit of manipulation, the Dow Jones Industrial Average gained 1.3%, winning back some of Friday’s losses.

And as you’d expect, the yield on US 30-year Treasury bonds fell. At last count, these bonds yielded 2.36%, down from 2.41% before Ms Brainard’s comments.

And to show that the market doesn’t do anything these days without considering the actions of the US Federal Reserve, the probability of a rate increase this month now stands at 22%.

On Friday, there was a 30% probability of a rate increase.

So on it goes. We shouldn’t be so surprised. The Fed has been manipulating interest rates for over 100 years. Why stop now?


Overnight, the Dow Jones Industrial Average gained 239.62 points, or 1.32%.

The S&P 500 index added 31.23 points, or 1.47%.

In Europe, the Euro Stoxx 50 index fell 40.32 points, for a 1.32% drop. Meanwhile, the FTSE 100 lost 1.12%, and Germany’s DAX index fell 1.34%.

In Asian markets, Japan’s Nikkei 225 index is up 35.36 points, or 0.21%. China’s CSI 300 is down 0.22%.

In Australia, the S&P/ASX 200 index is up 10.69 points, or 0.2%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$46.06 per barrel. Brent crude is US$48.32 per barrel.

Gold is US$1,328 (AU$1,756) per troy ounce. Silver is US$19.17 (AU$25.35) per troy ounce.

The Aussie dollar is worth 75.64 US cents.


Breaking news. According to Bloomberg:

Labor Party says it has reached an agreement on budget savings measures with Australian government.

The savings? A grand total of $6.3 billion.

Wonderful. It’s just a shame that the ‘savings’ come from spending over multiple years, whereas the government’s deficit this year alone, before any cuts, is $37.1 billion.

The phrase ‘a drop in the ocean’ springs to mind.


It was always going to come. It was just a case of when, not if.

We’re talking about the VIX — the volatility index.

You can see in the chart below that volatility had seeped out of the market in recent weeks, after the UK ‘Brexit’ vote. The various voices at the Fed had tried to gently push the market one way or the other, without crashing stocks.

chart image

Source: Bloomberg
Click to enlarge

That ended in failure last week when comments from Eric Rosengren, the Federal Reserve Bank of Boston president, helped send US markets plummeting.

Now volatility is up again. How long will it last?

In our view, for as long as the manipulators (you know who you are) keep trying to manipulate the market for their own ends.

Is this ‘gold’ better than gold?

Check out this chart:

chart image

Source: Bloomberg
Click to enlarge

Gold has had a great year. It’s up 25.5%. Compare that to the Dow Jones Industrial Average (up 5.2%), the FTSE 100 (up 7.4%), or the Aussie S&P/ASX 200 (down 1.12%).

For all the criticism that gold receives, it has bested the Dow by 5-to-1, and it has beaten the FTSE 100 by more than 3-to-1.

And if we compare gold’s performance to the company run by one of gold’s biggest critics (Warren Buffett), bullion has nearly doubled Berkshire Hathaway Inc.’s [NYSE:BRK.A] 13.1% return this year.

Eat that Buffett. So much for gold being a dumb investment.

But do you really need me to repeat (again and again) how valuable I consider gold as an investment? Probably not.

But strike that for a moment. When I said gold is an investment, I misspoke. In a way, it’s an investment, in that you can buy it for a low price and sell it for a high price.

In reality, gold is more than an investment. I genuinely see gold more as an ‘insurance policy’ against central bank and government meddling. That’s why I hold gold in my portfolio.

It is why, even though I look at the gold price every day, I never think about selling gold. Instead, I’m always looking at opportunities to buy gold (something I haven’t done enough of lately, due to sheer laziness).

So, what if you like gold, but you’re not really interested in the ‘insurance’ angle? Or you just want to try and clock up big gains?

One option is to buy a leveraged exposure to the gold price. You could trade CFDs (contracts for difference) or futures contracts.

If that’s your bag, go for it. Experienced traders can make (and lose) big money from CFDs and futures.

But, we’ll put the emphasis on experienced. One of the big problems with leveraging gold in this way is that, while it’s possible to make big money, you don’t know with 100% surety what your risk is.

If you back gold to rise — going ‘long’ (buy) on leveraged CFDs and futures contracts — you could be in serious trouble if the market quickly moves against you. While CFD providers and futures brokers have sophisticated margin setups, you are always at risk of potential ‘gap downs’ in the market.

That is, where a sudden and significant market event causes the price to fall precipitously, meaning that the CFD provider or futures broker closes out your trade at a much lower price than you expect.

That’s the deal with using leverage. It can boost your returns, but it can also make your losses much worse.

However, don’t for a minute think that I’m trying to talk you out of leveraged plays completely. I’m not even trying to talk you out of CFDs and futures. If you know how to play them, they can be lucrative.

But what if there was a way to employ leverage in ‘gold’ without taking out a loan…without using CFDs…without using futures contracts…and where you knew exactly what your maximum risk was before you even placed a trade?

Would that interest you?

The good news is that such a play is possible. Now, as with all investing, while you may know your maximum risk, it doesn’t mean you know for certain how much profit you’ll make. Remember, this is investing, not voodoo magic.

But because you know your maximum risk from the outset, to my mind, it puts this leveraged way to buy ‘gold’ at the front of the queue when it comes to speculating.

Just be clear on one thing. This doesn’t involve actually buying or selling gold. You won’t need to set up an account with a bullion dealer. You won’t need to find somewhere to store gold bars and coins.

Buying the kind of ‘gold’ I’m talking about is as straightforward as buying a stock in an online share trading account.

However, that’s all talk. Where’s the evidence that buying ‘gold’ in this way is as great as I’ve made it out to be? Well, think about the chart above. I showed you that the gold price is up 25.5% so far this year.

Check out this chart now:

chart image

Source: Bloomberg
Click to enlarge

During the same period, this type of ‘gold’ is up 92.7%. That’s more than three-times better than the gold price performance.

Who wouldn’t want that? But while that’s good, what if I told you that you could take a leveraged position in ‘gold’ and crank it up another notch?

You’d like that, right? If so, check this:

chart image

Source: Bloomberg
Click to enlarge

How does a 142.3% gain grab your attention?

To recap, the Aussie blue-chip stock index is down 1.12% this year. The gold price is up 25.5% in US dollars (up 21.1% in Aussie dollar terms).

In contrast, the two leveraged ‘gold’ plays I’ve highlighted above are up 92.7% and 142.3% respectively.

Remember, these ‘gold’ plays don’t involve buying or selling physical or even electronic gold. This is an entirely different way to get exposure to the gold price.

It’s not without risk, so don’t be under any misapprehension about that. But if you can play it right, this way to play the ‘gold’ market could be one of the more lucrative speculations you can make.

More tomorrow…