Making Money with Manipulators

April 3, 2000

Those articles showed that there was a distinct pattern in the trading of spot gold in each 24-hour trading cycle. On Tuesday I received an e-mail from a commodities broker who said that he "had played around with the original model and made some money." By Friday, I had to sit down and write this expansion of the original concepts.

Americans, like many other peoples, had a history of valuing gold. They used it in their every day financial transactions and they saved it to store value for future needs. This behavior continued until April 5, 1933, when what some view as the greatest theft in American history took place. F.D.R, through Executive Order forced citizens to turn in their gold, gold coins, and even gold-backed currency for paper dollars. Then, on January 30, 1934 through the Gold Reserve Act he devalued those paper dollars by setting the price of gold at $35 per once instead of the prevailing $20.67. At one stroke of the pen he had reduced the savings of Americans, who had placed their faith in the money that mankind had valued for centuries, by about 40%. He had given them paper that was now worth so much less in a period of several months. The only positive element was that many Americans silently refused to put up with the theft and kept their gold hidden. These people waited decades to earn back the freedom to bring their gold coins out of hiding,

My previous articles concerning manipulation do not exist in a vacuum. There are many articles appearing on Internet sites such as Gold-Eagle and Café Metropole. An extremely useful article summarizing the case for the existence of gold price manipulation can be found at

http://www.gold-eagle.com/editorials_00/bolser032700.html

You will also find a valuable article about the attempt to get a direct answer from the Clinton administration concerning the use of ESF in suppressing the price of gold.

http://www.gold-eagle.com/editorials_00/howe040200.html

This requires a direct unequivocal denial by the Secretary of the Treasury and/or the President, who are the only two empowered through the Gold Reserve Act to carry out, in secret, these legal but immoral acts. It is a valiant effort by people such as those in GATA that pushes this forward. However, based upon our knowledge of Clintonspeak (a version of Orwell's Newspeak), I don't hold out much hope for such an admission. They will have to get the goods on them through other means.

Meanwhile, we are sitting in the midst of a fiat currency induced stock market bubble. Some people are again accumulating the old reliable physical gold in the form of coins and bullion as insurance. You just hold these in case of a disaster. You don't keep checking them against their dollar price. What do you do with the rest of your money while you're waiting? One of several possibilities is to make short term gold trades.

If the model outlined in my first article is an accurate predictor what is the best way to use it for such trading? The model showed that there were two distinct trends within each 24 hour trading cycle. First the market price went up from the NY spot close to the London AM Fix; then the market price went down from the London AM Fix to the NY Close. One way to use the model would be to:

  1. Buy right before each NY spot close and sell the following morning at the London AM Fix
     
  2. Sell short at the London AM Fix and close out the position right before the NY Close

Table 1 shows the percent of successful trades over all of the trading days since the original collection of data on January 25, 1999. A full 75% of the NY Close to London AM Fix trades show a gain, while 70.55% of the London AM Fix to NY Close trades are successful. However, it is not so much the number of positive gains that we're concerned about, but the amount of money that was made.

Table 2 shows the results of using the suggested trading pattern over 3 possible time periods. Referring to my first article, you can see that the original awareness of the pattern was based upon an informal impression gained as I viewed the gold trading results during the end of 1999. If I had simply used my visual impressions and began trading on January 25, 1999, instead of waiting for a formal data analysis, what would have happened? Table 2 shows that the combined dollars per oz. earned would have been $104.45 ($46.10 + $58.35). If I had waited until the analysis was complete and then started trading I would have earned $22.40 ($4.95 + $ 17.45) per oz through the close of trading on March 30, 2000.

The original model trading suggested that the 2 trades that were made in each 24-hour period would result in equivalent gains ($41.50 vs. $40.90). This turned out not to be true in subsequent trading as the London AM shorting provided gains about 3.5 times the NY to London Am Fix trades ($17.45 vs. $4.95). Still the combined post original model trading yielded profits of $22.40 per oz.

These dollar values do not include any costs of placing trades nor any leverage gained by margin activities. The application of those factors will be left to the actual traders.

The final item deals with a question of morality. Wait! Don't leave yet. This is important! If the markets are being manipulated is it appropriate behavior to go along with the manipulators and make money? This is not an easy question to answer. If our behavior actually reinforces the attempts of the manipulators then I would not participate. However, if we're positioning ourselves in an even two-sided trade, e.g., supporting the overseas buying and also the NY selling, then the net outcome might be neutral in the sense that we're not accelerating the manipulation. Of course, we're not fighting it either. You might view this behavior as buzzard-like. A natural market phenomenon of taking the lion's leftover kill. But the buzzards don't have the cognitive power to make moral decisions, do they?

 

A sheet of gold can be made thin enough to be transparent