NY Tightens Death Grip on Spot POG

October 30, 2000

This report is the latest addition to a series that I have published on the GOLD-EAGLE Site. For over 9 months I have documented the conflict between rising prices overseas and their cancellation by selling on the NY spot market. Overseas investors in physical gold have done quite well this year versus their own currencies. For example, gold is about at its year 2000 high vs the D-Mark, at an all time high in terms of the Euro and at its highest level in 5 years vs the Australian dollar. U.S. investors have not fared so well vs the super strong dollar. The dollar price of gold has in fact gone down about $20/oz since the start of 2000.

Three tables presented below contain the data that continue to show upward buying pressure in the overseas markets and downward selling pressure in New York. However, this time we see not only a canceling out of overseas gains, but a slow beating of those buyers into submission.

Table 1 shows that we still see, after 9 months, about 3 out of 4 of all changes in price are positive from the NY spot close to the London AM Fix. I have referred to this part of the 24 hour trading cycle as the overseas component. For the change in price from the London AM fix to the NY spot close we see, an almost mirror image, about 3 out of 4 resulting in losses. Table 2 indicates that of the 4 possible combinations in a complete cycle (e.g., overseas trading + NY trading) by far the most likely is a gain overseas followed by a sell off in New York. More than 55% of all cycles follow this pattern. It is interesting to note that the least likely pattern is a loss overseas followed by a gain in New York. Only about 8% of all trading cycles follow this pattern.

Table 3 is the one that shows the amount of gain or loss in each component of the trading cycle. In addition to 9-month totals, I have divided the number of trading cycles in half for a simplified look at the magnitude of gains and losses for the first 4.5 months vs the last 4.5 months. Totals, means and standard deviations are given for each trading period. There are several effects that we can see reflected in these data:

  1. If by some slight of hand we could remove the trading in one part of the world we would see a large increase or a large decrease in the price of gold. The net increase from overseas trading alone would result in a gold price approximately $125/oz higher than on 01/25/2000 when the study was started. On the other hand, NY trading alone would have resulted in a net decrease of $136/oz.
     
  2. For the total 9 month period the average daily increase produced by overseas trading was $.67 while the average daily decrease occurring in NY was $.72.
     
  3. If someone
    a) bought at the NY close, then sold at the London AM Fix and
    b) placed a put at the London AM Fix, then covered at the NY close; they would have earned, before commissions, $1.39/oz per day over the 9-month period.

     
  4. Trading the first half of the time period would have yielded much greater success, $1.61 per cycle vs only $1.17 per cycle for the later 4.5 months.
     
  5. Gains and losses have been greatly reduced in their variation during the later trading period (standard deviations have been cut in half!).
     
  6. From the first 4.5 months to the second, the average loss per day in New York remained almost constant between the two time periods ($.75 vs $.70). Overseas, however, the average daily gain was almost cut in half (from $.86/oz to $.47/oz). Another way of looking at the data would show that during the first half, overseas buying strength produced a net increase of about $10/oz in the price of gold. During the second period NY selling pressure resulted in a net loss of about $21/oz.

What does this all mean? It seems that the NY trading is not only counteracting the overseas gains, but is starting to make them smaller. It is as if the constant New York selling into the gains has finally intimidated those overseas buyers. It appears to have had the desired effect and made overseas buyers less likely to go against the New York selling. Hence we see the shrinkage of the average daily overseas gains during the latter part of the time period and a lowering of the likelihood of a big buying day (i.e., smaller standard deviation). The end result is the net loss in price/oz ($21) during the last 4.5 months that is twice as large as the net gain ($10) during the first 4.5 months.

I will repeat my earlier prediction, which assumes that these data, other articles on the GOLD-EAGLE site, and various GATA findings point to a severely controlled market. The gold market is a relatively small market. The manipulators have huge resources. Small blips on the economic scene are not going to produce significant, lasting POG rallies. They will be easily controlled. Only that frightening, stomach turning, obviously out of control event will create the panic necessary to overwhelm the manipulators. It could be a Middle East war that threatens the oil fields, an extremely cold winter that strains the ability to deliver heating oil fast enough, or some currency crisis that is just too big to paper over. Whatever it is, no one will mistake it when it arrives.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.