This is part of an ongoing series describing silver "Electronic Price Discovery versus the Fundamental Reality." In this discussion, we go a little deeper with HFT and algorithm trading, and its impact on the market.
For now the energy markets are stuck in a relatively tight range which can tend to lull some to sleep and potentially trick traders into taking risks that are maybe not especially wise for these markets.
Zero interest rate policy scorches the planner and the saver, rotting the seed corn while providing fuel for speculation, breeding the trading culture pestilence we see today. Yet again, another tiresome cycle appears. More bubbles to end all bubbles.
For all of its influence over the short term, price discovery of an array of asset classes and notable the precious metals, high frequency trading (HFT) fuels an even more ominous trend. The speed and widespread use of trading algorithms have expanded the gap between fundamentals further than anyone could have imagined.
Commodity price performance has lulled the speculative community into a sense of complacency. The speed with which accidents can happen can only be imagined in the context of flash crashes. That is when gold and silver shine.
Technical analysis will always have a place in the speculative marketplace. Its function may not be reading tea leaves, but its connection to fundamentals is about as useful as the modern day consumer price index.
Naked shorting of silver is not really the issue, as silver analyst, Ted Butler has been pointing out for decades, it is more about the extreme concentration of short silver positions and less about the big players being caught red-handed sending blatant signals of market price fixing collusion.
HFT programs now have enough money behind them to destroy real wealth or productive capital in microseconds if they simultaneously deal in large enough volume to cause a flash crash in a market they are permitted to operate in.