Out of my interest in every participant in the gold market – not only physical gold advocates – I’ve interviewed gold futures trader Petko Bankoff from Bulgaria. Thanks Petko for your time to answer my questions!
What’s your background?
I graduated the High School of Maths and Natural Sciences with the specialty “Earth sciences and English languages” in my hometown in 2001. After graduation, I joined the army where I spent 1 year. Then I signed up at a university to continue my education but never really graduated it – I decided that they can’t give me the knowledge I need to succeed in life so I quit. I consider myself self-taught – in the era of the internet if you have the will to learn, you can learn anything you want, there’s no excuse for ignorance. I became proficient in SEO (Search engine optimization) and website administrating, audio engineering – recording, mixing, mastering, and obviously trading which is my latest passion.
What’s your affinity with trading? When and how did you start trading, what do you trade?
I started trading in 2009-2010 influenced by a friend of mine who made a lot of money in the 2007-09 period. To be honest, the first trading instrument that I traded and caught my eye was gold. I remember how expensive gold was back then, near the all-time top, everybody was so bullish… I traded with demo account for 2 weeks before I put in real
money. It is always better for a new trader to start trading small but with real money instead of demo. It’s the same market but the emotions are different, when you know you’re risking real money the feeling is totally different, your thinking changes dramatically. Demo accounts are only suitable for model testing, nothing more.
How do you trade? What markets?
In the first few years I traded gold and FX, later I quit FX due to the enormous amount of randomness in this market and I concentrated on gold entirely. You can’t be good at everything, you have to specialize in one market, learn its dynamics, learn to “breathe” with it and feel its “heartbeat”, every market has its own peculiar dynamics and you must learn to tap yourself into it. I specialize in technical analysis. I have developed a model based on technical indicators and psychology of the crowds so I guess I can call it a behavioral financial model too. Basically I’m looking for some kind of imbalance in the market.
What do you know about your big “colleague traders” (bullion banks) in the gold market?
Everybody has his own model and his own unique way of trading and approaching, some are good, others not so much. What I know for sure is that Mr. Market is equally mean to everyone, regardless if you’re a retail, institutional trader or big hedge fund manager.
How did the gold market develop over the past years? What changed trading?
Change is something so constant that you don’t feel it until it’s actually there. The markets are a vast random system that is constantly shaping its laws. They’re dynamics are always changing, just like the climatic system on our planet – it’s never constant. Over the past 5 years the markets’ conditions are going through really big shifts, influenced by the Central Banks’ erratic money printing. It is a historic time we live in now, it is turbulent and I think that the laws and dynamics that are gonna drive the markets in the next 50 years or so are shaping right now, you better keep your eyes and ears open. One major factor influencing trading nowadays is the HFTs or algos, I’ll talk more about it.
How do you define value?
Value is defined by the sum of all trading combined. Right now the gold market value is 1203.45, that’s it. We can talk all day and night about whether gold is undervalued or overvalued, but in the end all that matters is the ticker, that’s all. The market is always right.
Do you aim only for a fiat profit? More precise, are you interested in macro-economics as well? Do you think macro-economics and geo-politics influence the price of gold?
I trade for profit, i.e. fiat capital appreciation. My model is based on technical analysis and perception of the traders, I do not consider macro-economics into it. I don’t think geo-politics influence the price of gold, at least not in the current conditions, unless a war errupts or some other big event happens.
How does HFT trading influence trading?
That’s a very interesting question, Koos, thanks for asking me. This is a very wide subject that could take us a whole night of discussion so I’ll keep it simple. The HFTs, or also called algos, are very popular recently and their influence of the markets is becoming
Increasingly strong. Basically, these are computer programs that operate at a very high frequency – they take a few hundred trades a second and thus create big sharp spikes or selloffs that usually happen so fast that no human brain can react to it. What they usually do is hunt for stops on both sides below support and above resistance. For this behavior of them, the traders observing the market have the impression that it is rigged or manipulated and they’re not far from the truth – they’re programmed to screw the traders. So if we talk about manipulation we should talk about algos.
Is the gold market manipulated? If so, how? Only short term or also long term?
Depends how you define “manipulation”. To most people manipulation is one evil despicable guy sitting in his office and pressing the sell button to artificially drive the market down through excessive shorting. This is primitive thinking, markets are much more complex than that, not to mention that shorts do not drive the price down, it is entirely the buyers that create the huge selling waves – once enough longs have been accumulated, let’s say 70 – 80% of all open positions are long, it takes very little for them to become scared and to start liquidating, and the more they liquidate and drive the price down, the more new buyers jump in thinking that the market is wrong, undervalued, and thus creating an avalanche-like effect – the more snowflakes join the avalanche down the slope, the more powerful the avalanche/selloff becomes.
The gold market is too big even for an institution such as the Federal Reserve to be manipulated so directly through direct selling/buying. Is the gold market influenced? Yes, there is no doubt about it; you can clearly see the price action around events such as FOMC, NFP, Yellen’s speeches, etc. But is it manipulated? I don’t think so, it’s just too big. Nothing is stronger than an idea which time has come. If a market is matured enough to selloff or rally, it will selloff or rally, there’s no force or institution that can stop it from doing that. Take a look for example the CHF peg that the SNB was defending – that’s 100% manipulation and see what happened – after 2 years and $80bn loss, one of the richest banks in the world, the SNB, has abandoned it because they couldn’t afford to do it anymore and couldn’t handle any more losses.
The gold market is much bigger than the EURCHF pair, there’s no institution on this planet that can afford to take billions of losses every month to keep it rigged just to screw a few retail traders who think that the real value of gold is $10 000/ounce and the market is artificially kept subdued. The only manipulation going on in the gold market is the HFT algorithms that create fake rallies through excessive accumulation and thus simulating that there’s actual demand from investors/traders. The regulators claim that algos do no harm to the market structure because they create only intraday swings and do not influence the long term structure, but are they considering the impact on the investor confidence?
There’s decreasing lack of participation and liquidity in the last months and it is no secret why – would you risk your life savings if you knew that a bunch of robots are looking to screw you and hit your stop? Undermining investor confidence has a crucial long term impact on our global economy, I think that the CFTC is really underestimating this problem.
Where do you think the price of gold is heading in 3 months, 1 year, 5 years?
Nobody knows where the price of gold will be in 3 months, 1 year, or 5 years. What I can say is that I’m bearish, this bubble has burst and I don’t think it’ll be pumped again in the next 5-10 years. Until I see a substantial bottom in place, from a technical point of view, I’ll remain bearish on the short side of the trade.
Where do you think the global economy is heading?
I am not an economist, neither I am interested of the macro-economy as a trader, so I really can’t give my professional opinion about it. As a citizen, it seems to me that our global economy is going pretty well and is advancing. 2008 was a serious threat for our global society at all, if we lose trust in each other we’re left with nothing, our whole society is based on trust. Luckily it’s all looking bright now, the sun is shining again and confidence has been restored. Also, the world stock markets look pretty strong which is the main indicator that we’re far from a global crisis.