Why The POG Is Not $400 NOW !
Harry J. Clawar Ph.D.
It's been about a year since I examined what I identified as the POG price suppression through NY gold market trading. Those of you who read my earlier pieces recall how, consistently, overseas gains (from the NY close to the London am fix) were cancelled out during subsequent NY gold trading. I have been urged by some to re-examine the phenomenon since my last analysis (about 13 months ago) to see if it still exists.
The earlier articles showed that even though overseas trading had an upward bias, the relentless NY selling not only drove the price back down, but also seemed to have an intimidating effect on whoever was doing the overseas buying. This was illustrated by the fact that although NY selling pressure remained fairly constant during that year, the overseas buying strength was cut almost in half during the second six month period. At the time I remarked that unless there was some cataclysmic event there would be no large breakout (e.g., $25 spot rises that stick). The strength of NY selling would overwhelm and condition the overseas buyers to cautiously and fearfully participate even if events looked as if they should be buying. This week the NY crowd took out the mallet again. Since the London AM fix hit $385 on Feb 5, the NY close was down an average of $5.68 from the London AM fix for each of 6 subsequent trading days.
Looking at the data from January 14, 2002 (right after my last report), until today's N.Y. closing (February 12, 2003), shows some changes but still points to NY as the source of POG capping. The data still show 2 markets working in opposite directions despite the rise in POG from about $286 to $352 per oz today. For the 234 events, the London AM fix was greater than the previous day's NY close for 57.7 % of the time, while the NY close was greater than that day's London am fix for only 44.4% of the time. This was during the period when the POG market was RISING. Even more startling, the total accumulated dollar gains for the London AM fix minus the previous NY close was over $110 . NY closing vs. that day's London AM fix showed total accumulated LOSSES of about $54 . The NY market, in the main, seemed to be dragged ahead by overseas pressures. This means, strictly on a statistical basis, if you partial out the NY trading you would have a POG about $400 per oz.
Many analogies have been presented to try and give further meaning to the "why" and "how" of this phenomenon. The one that I like the best refers to a medical setting. A doctor makes a mistake caring for a patient. The patient develops severe complications. He complains of a high fever, which is the primary symptom of the disorder. The doctor does not want to be identified as the cause of the disorder so he breaks the thermometer before using it on the patient. It reads "normal". The patient is confused. He feels ill but the thermometer says he's fine. The thermometer, of course, represents gold as it has historically signaled the developing sickness for fiat currencies. The doctor is the various international and central banks that have produced the "sick" fiat currencies. And the patient is the citizen who sees the economic rewards that he receives in fiat continually eroding in its function as a store of value.
This method of destroying or distorting the measuring stick is used over and over again to mask real outcomes and change goals. In education objective tests are attacked because they provide normative anchors that let us see how poorly current students compare in reading and mathematics to students from the 1940's and 1950's. Those of you who happened to see current U.S. history school textbooks cannot help but notice the downplaying of the founder's animosity towards big government and, at the same time, their fear of democracy, which they termed the "rule of the mob" (hence our republican form of government). Therefore, the students can see nothing "historically" wrong with a government that takes about 50% of our income through taxes and regulations. Also lacking are biographical sketches of many of the great entrepreneurs and inventors such as Edison and Ford (what free market?). Classical, and especially Austrian economics, are virtually absent from our educational system. So what's wrong with pumping up the money supply to feed the government leviathan?
The constant anti-gold drumbeat of the financial media has only recently been slightly punctured. The U.S. gold buyers of the last generation are gone. Between the verbal negativity of the media, and the NY gold market smashing down each advance a real calamity is needed to have U.S. buyers, in great numbers, follow the Asians into gold purchases. What would help greatly is to have some big player, maybe a central bank or two, get really nervous and jump in and buy. With the political in-fighting going on now concerning IRAQ this is not totally out of the question.
The big mallet is out in NY! What's next?
Harry J. Clawar Ph.D.
Hjc@angelfire.com
02/13/2003
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