Tables 1 and 2 reveal the year 2000 pattern from earlier articles. Although overseas buying alone would have moved the POG up as much as $153, the total London/NY trading more than cancelled it out, resulting in a yearly loss of about $14. The most recent 12-month period ending in mid February shows that the London/NY selling, although still negative, could not overcome the continued overseas buying. The net result was a POG increase of about $59.

Figures 1 and 2 indicate that for the year 2000 most of the trading in London/NY resulted in POG losses (data points below the 0.00 change line). Just the opposite was true of the overseas trading. In the first figure you can see how the trading in the London/NY interval leads to outcomes that vary more than those overseas. Many more changes in POG are further away from the net change of zero line. This degree of variation around the average change over the year can be summarized by a statistic known as the Variance. In the year 2000 the Variance in POG changes was 2.62 times as great for London/NY trading as for overseas trading (Table 2). This tendency for greater swings in POG price during the London/NY trading, which is only 8 hours long, vs. the overseas trading, which is about 12 ½ hours long, is magnified during the recent 12-month period. I'm estimating the 12-½ hour length by starting at the Sydney opening, which occurs about 3 ½ hours after NY close, and ending with the London AM Fix. The impact of the NY Access Market prior to the Sydney opening appears to be negligible. The Variance ratio between the London/NY and the overseas change in POG recently climbed to 3.22. You can see this by looking at figure 2 and observing the even larger blue swings on either side of the zero change line. These changes are much greater than those produced in the overseas markets.

Therefore, while the overseas markets produced the buying that was great enough to move the POG forward, the wilder gyrations, up and down, happened during the London/NY trading. Even though there are large increases in the POG often occurring in London/NY, they are still not enough to overcome the large selling days in that same market. They are just enough to eliminate the up trend-countering action, which in 2000 held POG in place.

An extremely interesting fact, adding light to the 2000 vs. recent 12 months data, is that the dollar index rose approximately 10% during the year 2000 while it fell about 12 % during the most recent 12-month period. The large overseas POG gains were overcome in London/NY trading when the dollar was strengthening but added to dollar POG when the dollar was falling. The POG gain was about 16.7% during the period when the dollar fell by about 12%. During this period then there is about a 40% greater gain in the POG than the fall in the dollar index. I've seen some projections for the dollar index to resume it's downward trend and wind up about 20% lower at about a value of 70 by year's end. If the ratio holds approximately true, then POG should climb by about 28% from its current $401 level to about $513 per ounce during that same period. This assumes the continued ability of overseas buyers to drive the POG up vs. the wild, but almost result-neutral, London/NY gyrations. Of course there might just be a psychological tipping point where a dollar fall of this magnitude, especially if it accelerates, will attract many more buyers to gold. In that case, the controllers of the London/NY markets might just be overwhelmed, with $513 being too conservative a projection.

Harry J. Clawar Ph.D.
Hjc@angelfire.com

8 March 2004