The reason behind the safe assets like gold and bitcoin not surging despite the coronavirus pandemic creating enormous volatility in the global financial markets is the “intense and large-scale manipulation,” states a report by the University of Sussex.
The report published on May 14 points out how during the 2008 crisis, the correlation between the S&P 500 and gold was about minus 40% but this time around it was +20%.
“As funds flow out of equities one would expect demand for gold and bitcoin to increase,” said Carol Alexander, Professor of Finance at the University of Sussex Business School.
Safe haven take a hit along with stock market
After the equities market crashed in March 2020, gold had its worst week in eight years when it should have been its best. This was because of the massive shorts on COMEX gold futures, she said.
S&P 500 crashed 33.9% in March and has already climbed above 3,000, up over 34% since the sell-off. The precious metal meanwhile dropped 11.7% from the multi-year lows and is currently at $1,726 per ounce.
However, while the S&P 500 only continued upwards since the fall, gold is down 1.7% from $1,756 in mid-April.
A behavior also is seen in Bitcoin.
The report mentions that since its birth in 2009, the world’s leading digital asset has been uncorrelated with any traditional asset. But this time, bitcoin’s correlation with SPX was +63% and remains “unsettlingly” high at 40%.
Bitcoin was “driven down by some pretty obvious manipulation bots on the unregulated crypto derivatives exchanges, especially BitMEX,” Alexander said.
Rarely seen before manipulation affect the markets
On tracking the trades on both gold and bitcoin markets, it was found that there have been detailed huge sell orders on gold futures and massive pump and dump on copper futures in recent months.
Some single trades on COMEX were extremely large — innately clear contraventions of US laws on market abuse. But with the regulators busy in the current time of distress, these manipulations even the large scale ones remain off the radar of regulators. She said,
“We are witnessing financial market manipulations on a scale and frequency that have rarely been seen before.”
Also, large spoofing orders on key cryptocurrency exchanges have been detected.
But those placing these trades are not the only biggest beneficiaries of these attacks but also the holders of US dollars and US assets.
Both of them have become the primary sources of positive returns for global investors in attempts to “curtail the recent trend of some central banks to diversify their reserves away from the US dollar.”