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NY Tightens death Grip on Spot POG - Part II
One of the most useful things about writing articles for the Gold-Eagle is the rapid e-mail feedback provided by dozens of readers. Some of it is complimentary, some provide information, and a few spark additional considerations about the topic. My article of October 30,2000
http://www.gold-eagle.com/editorials_00/clawar103000.html
Showed that for two consecutive time periods, of about four and one-half months each, gold selling pressure in New York seemed to be taking its toll on gold buying pressure overseas. One of the readers suggested that the differences might be due to the strength of the U.S. dollar vs. those "overseas" currencies. It does seem reasonable that if we're reporting in U.S. dollars, a weakened overseas currency will simply be able to buy less than before.
This research represents an attempt to partial out, as much as possible, the effects of those currency fluctuations in analyzing the overseas vs. New York gold trading phenomenon. Although you should read the prior articles describing this phenomenon, I will remind you that overseas trading refers to the change in U.S. dollar POG from the NY spot close to the following London AM Fix. It is the consistent increase in this value followed by an equally consistent selling pressure in New York that motivated this series of articles. In the October 30th article we saw a drop in overseas gains per day of about 45% while the New York selling let up only a little more than 6%.
I have taken the 17 overseas (prior to London AM Fix!) countries for which the World Gold Council reports Gold Demand, to use as a basis for examining the impact of currency change on the alterations in overseas vs. New York gold trading. Table 1 presents the units of each currency per U.S. dollar for the start and end of the two studied time periods The right hand column indicates the number of tons demand reported for each country during the first half of the year 2000. Two of the smaller countries, in terms of gold demand, have been excluded because of unavailability of currency exchange rates for the study dates. They are minor in magnitude and should have no discernable impact on our conclusions.
Table 2 displays the change in U.S. dollar purchasing power for the 18 currencies during the two consecutive four and one-half month time periods. The third column points out the difference in that purchasing power gain from the first to the second time period. For example, the U.S. dollar purchased 1.44% more Indian Rupees from January 25, 2000 to June 12, 2000. It purchased 4.29% more Rupees from June 13, 2000 to October 27, 2000. The gain in purchasing power for the U.S. dollar was 2.84% more in the second time period than in the first.
At the bottom of Table 2 we find arithmetic mean and median values for the three columns. In order to accomplish the objective of this study, we must adjust the average U.S. dollar strength gains by the "normal" gold buying quantity for each country. That is, any changes in average U.S. dollar strength, that include U.S. dollar-buying power vs. the Indian Rupee, must reflect the fact that India potentially purchases 33.7% of the gold total for the 18 countries.
In Table 3 a display of the individual weights for each country is presented. Each country's percent change in U.S. dollar-buying strength, from time period one to time period two, is weighted by its proportion of total gold purchased by the 18 countries. The total value represents the weighted average change in U.S. dollar purchasing power from time period one to time period two.
The weighted (by gold purchasing potential) change in average U.S. Dollar purchasing power vs. the 18 currencies is about 3%. This means that although our overseas foreign currencies have less gold purchasing power vs. the U.S. dollar, the decrease is far too small to account for the facts presented in the October 30, 2000 article. Therefore, the very small decrease in daily loss in New York spot POG vs. the rather large decrease in average overseas gain in spot POG is not a currency exchange phenomenon.
It is my interpretation that the continual selling pressure from New York has begun to take its toll on overseas buying. Unless some large, frightening, uncontrollable event intervenes the New York sellers have gained even more of an upper hand.
Harry J. Clawar Ph.D.
HJC@angelfire.com
November 6, 2000
