Today we read about Kweku Adoboli, the UBS equities trader that allegedly went rogue and lost the firm $2B in Q3 profits. We also learned about the ECB effectively using extraordinary measures to prop up insolvent EU banks. A rumor also floated through the blogosphere that Mr. Adoboli was shorting large amounts of precious metals, specifically silver, through ETFs. What one has to wonder, given the timing of these events and the downdraft in metals prices today, is if the ECB and/or SNB is helping to support UBS by pushing down metals prices so they can exit the short position with less of a loss to report on their upcoming earnings announcement.
This sounds like a conspiracy theory, right? I would have thought so, too, many years ago. However, given the recent and direct Swiss central bank intervention in the Franc and precious metals markets, the dire situation in the EU threatening the monetary union and its currency was well as the threat of a global double dip recession, it seems more than possible that central banks are beginning to exercise their power in the precious metals markets more overtly.
Psychologically it’s a very effective technique. Hit metals hard on days that they would ordinarily rally to push weak (see leveraged) hands out of the market. Try to inflict as much technical damage as possible (although at this point no severe damage has been inflicted — but if this continues it will be).
The question is how long could such manipulation last, if that is in fact what’s going on here? I would personally doubt that such interventions can have staying power — at least not yet. The SNB hit on precious metals did not last very long, and when priced in Francs gold rallied to a record high. The previous sell-offs we’ve seen have produced a large amount of buying appetite around $39.00.
Today that seemed to be the case. I was buying some silver CEFs (closed end funds) when the price hit $39.49. I felt that a lot of buyers would begin to bite with more conviction as that has been the bottom end of the technical trading ranging silver has been within for the past few weeks.
There is some chance it could break down to $36.00, of course, but with a stop around $38.75, I’ll take a small downside risk given that the upside potential seems to be about 33% in the short to intermediate term. Good luck investing and trading, everyone. And be careful out there. The sharks are circling.