Preemptive Selling in COMEX Gold: An Update
This article updates an earlier study, Anomalous
Selling in COMEX Gold 1985 to November 2000, which I published
in late 2000. It validated Dr. Harry Clawar's earlier
findings of consistent, predictable COMEX selling against
a rising overseas market component. Dr. Clawar has since published
updated
conclusions, which reveal that in four out of five trading
days over a one-year period the COMEX closed lower than the London
AM fix. My earlier study utilized the concept of preemptive selling,
a condition that occurs when the dominant forces on the COMEX
sell gold three times lower than the same day's decline on London
market.
The World Gold Markets
Counter Trend Selling Updated
Dr. Clawar's counter trend COMEX selling tests the hypothesis
that the COMEX gold market can be predicted to close below the
next morning's London AM fix. Predictable market behavior such
as this represents abnormal and biased operations. Figure #1
below shows the updated series from 1985 through May 2001. Note
that for over a year counter trend selling has stayed above the
mean, indicating a sustained selling effort by the dominant forces
on the COMEX. This selling continues to be predictable and runs
counter to the activity in the overseas component of the gold
markets.
Figure #1
Figure #1a below presents an expanded resolution timeline.
Note the drop in counter trend activity just prior to the Washington
Agreement (WA) in September 1999. During that period gold exhibited
horizontal pricing. Perhaps the implied intervention was no longer
necessary. Then, late in September 1999, the rally in gold prices
triggered by the WA called forth a far more aggressive intervention,
resulting in a large spike in counter trend activity, which has
persisted at high levels almost to the present.
Figure #1a
Preemptive Selling Updated
By testing a relative condition between the COMEX and the
London Bullion Market, preemptive selling is more sensitive at
detecting trading patterns and their degree than a simple yes/no
test. Figure #2 below is an updated and annotated chart from
Anomalous Selling in COMEX Gold 1985 to
November 2000. The series has been divided into two falling
gold price epochs in order to highlight one of that study's several
control mechanisms. The temporal resolution units are months.
In a freely traded market, selling events in one price declining
epoch should be similar to selling events in other price declining
epochs. The original conclusion of clustered, anomalous selling
behavior stands.
Figure #2
Figure #2 shows that extreme selling events have continued
into the present year. The March 2001 event touches the three
standard deviation ceiling. These three standard deviation selling
events would be expected to happen only once in 83 years of COMEX
trading (1,000 periods). In Epoch 1, there are no selling events
which exceed two standard deviations. Epoch 2 contains seven
such events. Event B, a four standard deviation selling event,
would be expected to happen at random only once in 833 years
of COMEX activity (10,000 periods). The implications of such
an event are ominous. These extreme selling events started during
the Clinton Administration. Perhaps not coincidentally, Event
A occurred right around the time that the Federal Reserve, after
a lapse of 64 years, assumed the two American seats on the board
of the Bank of International Settlements. This aggressive selling
effort nevertheless only affected the price of gold in a minimal
way. Event B was necessary to break the resilience of the gold
market, which thereafter fell into a major multi-year decline.
Figure #2a
Figure #2a above gives an expanded time line from April 1998
to today, including annotations relating the over two standard
deviation preemptive selling events to related market events.
As yet there are no obvious market events to associate with the
March 2001 spike. However, at least until very recently, counter
trend selling has remained remarkably high around this March
preemptive selling event. Perhaps more effort has been required
to suppress the price of gold than in prior periods.
Conclusion
These updated figures show a continuation of the abnormal
COMEX gold trading pattern that began in 1994, including another
in a series of high standard deviation selling events. These
extreme selling episodes did not happen prior to 1994. The updated
figures also validate for the first part of 2001 Dr. Clawar's
observation that the COMEX gold market follows a predictable
pattern of selling against a rising overseas price component.
Such a market trading pattern cannot be regarded as random. The
recent slight reduction in counter trend selling below the mean
should be watched. It could indicate the beginning of a significant
change in trend.
G. Michael Bolser
Valrico, Florida
June 23, 2001
The author wishes to thank the Gold Anti-Trust
Action Committee, Bill Murphy, Reg Howe and Don Lindley for their
kind assistance.
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