GOLD MARKET REGRESSION CHARTS
Chartist Mike Bolser
The concept of regression analysis is discussed in the commentary
dated October 8, 2000, introducing this special section to The
Golden Sextant: Charting
the Gold Markets: Regressing to ? That commentary also
introduced Mike Bolser, who is helping the proprietor with this
section. We now have a photograph of Mike in more informal garb.
It replaces the prior photo taken at his daughter's recent wedding.
Mike says that he has put away his tux until the victory celebration
in the gold price fixing case. Readers wanting to comment, criticize
or ask questions particularly regarding the more technical aspects
of the charts can connect with Mike by e-mail: firstname.lastname@example.org.
The first regression chart shows the average daily clearing
volume in ounces transferred through the London Bullion Market
Association for each month beginning with March 1996, the first
month for which this data is available. Accordingly, and because
other comparable data on gold derivatives also commences at around
the same time, January 1996 suggested itself as a good starting
date for the entire set of charts.
For purposes of reference, the following chart depicts gold
prices over the same time period and scale as the regression
charts that follow. For those wanting greater resolution on more
recent gold prices, a chart covering the past three years is
posted at the end.
Current Comments (last updated 16
The OCC has just released the third quarter report on the
off-balance sheet derivatives of U.S. commercial banks. The gold
derivatives of Chase Manhattan Bank and Morgan Guaranty Trust
are still reported separately notwithstanding their merger into
J.P. Morgan Chase. During the third quarter, the total notional
value of all gold derivatives fell by $ 19.3 billion, with Morgan's
falling by $19.6 billion. The gold derivatives of Chase, Citibank
and Other remained essentially unchanged, both in totals and
in maturity profiles.
These developments are so extraordinary that in addition to
updating the regression chart on total gold derivatives as reported
by the OCC, Mike has also added charts showing gold derivatives
and interest rate derivatives by bank. The reduction in Morgan's
gold derivatives shows extreme discontinuity versus both the
prior trend and the other banks. Accordingly, it appears very
doubtful that this reduction represents a liquidation of positions
in arm's length commercial transactions. Rather, it appears far
more likely that the bulk of Morgan's positions have been transferred
to some other entity that is outside the OCC's reporting requirements
for commercial banks.
LBMA volume, which fell in October to average daily transfers
of 16.7 million ounces (the lowest monthly level except for July
of this year), recovered only slightly in November to 18 million
ounces. Notwithstanding the events of September 11, 2001, LBMA
average daily volume during September did not quite reach the
prior month's level, suggesting that any increase in physical
demand was more than offset by declines in paper trading. Accordingly,
the declining trend line remains in place, with the R^2 value
now up to .577.
March showed the first significant challenge to Mike's working
hypothesis of falling LBMA volume reflecting a dwindling supply
of lendable gold. This hypothesis did not exclude market "discovery"
of an impending exhaustion of physical supply, followed by physical
buying before a real squeeze pushed prices sharply higher. In
April, LBMA volume returned to its declining trend line; in May
it moved back to the March level; in June it plummeted to its
lowest ever June reading; and in July it declined further to
the lowest monthly volume yet recorded.
Meanwhile, open interest in COMEX gold futures also continues
at very low levels. At the same time, despite three consecutive
quarters of falling totals, demand for physical gold as tracked
by the World Gold Council remains in its long-term uptrend.
[The chart for COMEX gold deliveries has been dropped because
this information does not appear to have much significance except
as part of a broader picture including so-called "exchanges
for physical" for which complete data is difficult to obtain.]
The above with Reprint Permission of Golden Sextant:
December 20, 2001