Is Gold really being Manipulated?
Daan Joubert
Introduction
Readers of this newsletter are aware that the author is convinced that the gold market is not free and unfettered. For that reason, there is a substantial school of thought that holds the gold price cannot be analysed using standard technical methods – it is just too erratic for technical analysis to work.
The author uses a system of analysis developed since the mid-80’s by a colleague – Johan Pretorius, now deceased after a vehicle accident in 1992 – and himself. It is based on the observation that prices tend to reverse or change direction along preferred gradients. The well-known trading channel is an example of two ‘trend lines’ that reveal one preferred gradient on a chart.
Using trend lines to search for parallel lines on a chart, all of which reveal a significant number of changes in direction, it soon becomes evident that there are more than one set of parallel ‘preferred gradients’ on any chart of suitable duration. Investigation of these sets of lines with their different gradients soon led to the second observation on which the method of Chart Symmetry is based, namely that the different preferred gradients happen to be related to each other through the Fibonacci ratio.
This means that if the analyst can identify one preferred gradient – generated through two conspicuous points on the chart and then confirmed by testing whether it has a number of parallels, each generated from a key point on the chart, that also exhibit all the signs of a preferred gradient, i.e. that it passes through some other significant reversals - then it is possible to derive a large number of preferred gradients by repeated applications of the Fibonacci ratio to either decrease or increase the gradient of the derived line relative to one of the other preferred gradients, beginning with the initial gradient.
In other words:
- Define a master line by generating a line through two significant points on a chart
- Test that gradient by generating lines parallel to the ‘master’ line from other key points on the chart and note if there is a tendency for these lines to pick up significant points on the chart. If so, the original line defines a preferred gradient
- Multiply (or divide) the gradient of the master line by the Fibonacci ratio (0.618034) to deliver a line that is steeper (shallower) than the master line. This process can be repeated, using the newly derived gradient, to result in a whole fan of lines that have gradients separated by the Fibonacci ratio.
Different lines from the (potential) fan can then be used to explore the chart in a search for patterns – channels, triangles, wedges, etc – that would support a meaningful analysis in order to determine what could develop in the future.
The accuracy of this methodology is high but the behaviour of the price is not perfect – false breaks and reversals short of the expected trend line occur with too great a frequency to make the method totally reliable. But it often comes close!
6-hourly gold chart
This 6-hourly chart of the spot gold price may not make sense at first glance, but should do so once the generation of the trend lines is explained. The ‘master’ line, M that defines the initial gradient is the gold resistance line on the left of the chart. One anchor point is right at the top and the second is the centre of the little ‘notch’ at the top of the rally about one third from the bottom. Experience has shown that the centre of ‘bifurcated’ tops or bottom are significant points for Chart Symmetry analysis.
It is vital to observe that only the master line is defined between two points on the chart – all the other lines were derived from the gradient of the master line, i.e. if these lines appear to fit the reversals on the chart it is because they all represent preferred gradients.
The first line of interest, I, is the direct inverse of line M, generated from the top. Observe that it accurately offers resistance to the gold price just before the bottom was reached. This ‘inverse symmetry’ of a bull-bear trend combination is quite common. Line P – that was generated from the first low after the main low near the centre of the chart – is the inverse of I and thus the parallel of line M, with P-M as a broad bull channel.
These three lines all have the same gradient and between them offer sufficient proof that line M really does define a preferred gradient for the gold chart.
The most recent top is a complex one, followed by a lot of volatility. It has been found that a majority of chart patterns – be they triangles, wedges, pennants or megaphones – have boundaries that are Fibonacci relate, i.e. the gradient of the one boundary can be derived from the gradient of the other boundary, using the Fibonacci ratio.
Line F, the lower boundary of the current consolidation pattern is a shallower derivative of line M; its gradient was calculated by multiplying the gradient of M with the Fibonacci ratio and inverting the sign. The line was generated from the first little retracement as the gold price neared its top. As can be seen, it fits accurately as the (current) bottom of the pattern, picking three additional lows.
Line F2, the top of the megaphone pattern, is the next shallower derivative of M – with its gradient equal to ‘that of F again multiplied by the Fibonacci ratio’. The top boundary has three reversals to oppose the four reversals along the lower boundary, to make for a clear and definite definition of a megaphone pattern.
Lines X and Y are the next shallower derivatives – gradient equal to that of F2 multiplied by the Fibonacci ratio, to be the third shallower derivative of M. Line Y is generated from the centre of a small bifurcated bottom, while line X has its origin in the centre of a larger bifurcated bottom. It is currently offering key support for the gold price at a price equal to $343.70 – as can be seen from the table on the left, which gives the current values of a number of the lines, i.e. the values as at 1200 SA Time.
Lastly, we have parallel lines A and B, which are even shallower than X-Y, to be the fourth shallower derivatives of the original gradient of line M.
Interpretation
The first pattern of interest is the small megaphone in which the gold price has been consolidating since striking the recent double top at about $372.50. Megaphones are very strong formations, not easily penetrated, and usually containing strong and steep trends, as here. The support at line F ($342.40 and declining) is critical for the gold price, with either of lines X or Y as other key support over the near term.
Two possible scenarios would hinge on whether the gold price recovers off line F – and/or lines X or Y – to begin a new rally towards the top of the megaphone at line F2, currently at $361.10 A break above F2 is needed to put some new life into the gold market and open up the way to move really higher. The alternative scenario would have gold breaking below lines X and Y – even while maintaining line F as support – or even breaking below F as well. That would be very bearish.
Also observe that A-X – at the moment, perhaps A-Y at a later time, should gold descend to line Y – is a large triangle, more readily visible on a daily chart. The gold price has just completed leg 4 of triangle A-X and should in principle now begin leg 5, on which it will break higher above line A in due course. Statistics show that about 80% of all triangles complete normally, which gives gold an 80% chance of moving higher out of the current triangular pattern.
Chart Symmetry and manipulation
Some say technical analysis cannot work on gold because of the manipulation. Yet here we have an analysis – the data of which spans all time zones and all spot gold markets, not only the PM fix or the Comex market – and we discover that, beginning with a single gradient, that of master line M, it is possible to generate a most convincing fit of trend lines of four degrees of gradients that do not merely fit randomly, but make for cohesive and credible chart patterns.
Does this then mean there is no manipulation going on?
A question that occupied me for a long time is why Chart Symmetry should work. The only answer that makes sense – to explain the widespread, general and accurate appearance of the phenomenon of preferred gradients is that of complexity.
Complex adaptive systems tend to display emergent symmetries of some kind. It would appear that the preferred gradients are the emergent symmetry for financial markets. This underlying symmetry has to be very powerful indeed to cause prices to behave with the accuracy they display to their preferred gradients; here in this example and on many other charts of all manner of prices and rates and durations.
The implication is that even with the manipulation going on, true market forces are still at work; the gold price is still searching out a set of preferred gradients, all related to the master line used in this analysis, where it then makes the key reversals that give rise to the observed patterns. This does not mean manipulation does not have any effect at all – only that even with the manipulation going on the gold price still the result of real and competitive market forces. Buyers and sellers still rule, even when one side has to yield to the other under sustained buying or selling, and also irrespective whether the market participants represent their own interests or those of others behind the scenes.
Conclusion
There is no certainty that gold will behave as anticipated, completing triangle A-X, or perhaps A-Y, by breaking higher above line A at – or perhaps shortly after – the end of leg 5 of the triangle. But it surely is something to look forward to, if that is the way the development continues!
30 June 2003
© June 2003 Daan Joubert
All rights reserved to author and www.GOLDSignals.com
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