Gold market is not "Fixed", It's rigged

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John99
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Gold market is not "Fixed", It's rigged

http://www.zerohedge.com/article/guest-post-gold-market-not-%E2%80%9Cfixed%E2%80%9D-it%E2%80%99s-rigged

Gold Market is not “Fixed”, it’s Rigged

In 1919 the major London gold dealers decided to get together in the offices of N.M. Rothschild to “fix” the price of gold each day. While this was notionally to find the clearing price at which all buying interest and all selling interest balanced the possibility for market manipulation and self-dealing is inherently systemic in such a cozy arrangement. This quaint anti-competitive procedure continues to this day. In no other market in the world do the major players get together each day and decide on a price. Imagine if Intel, AMD and Samsung were to meet each day to “fix” the price of microchips, or if the major oil companies were to meet each day to “fix” the price of crude oil; wouldn’t there be a public outcry and a flurry of antitrust violation lawsuits? The “fix’ is not open to the public, there are no published transcripts of each fixing, and there is no way to know what the representatives of the bullion banks discuss between each other.

The current London Gold Fix is conducted by the representatives of five bullion banks, namely HSBC, Deutsche Bank, Scotia Mocatta, Societe Generale, and Barclays. The “fix” is no longer conducted in an actual meeting but by conference call.

The London Gold Pool that was instigated in the 1960’s was incontestably established with the sole purpose of suppressing the gold price. Several central banks furnished gold to sell into the market with the aim of keeping the gold price at $35/oz. This was overt market manipulation. How was this achieved? The internet site www.goldfixing.com explains here as a historical fact that “1961 - Gold Pool of US and main European central banks set up to defend $35 price, by selling at fixing to contain it”. So the London Gold Pool sold into the “fix” to suppress the price and no doubt the bullion bankers making the “fix” were party to this scheme.

The London Gold Pool disbanded in 1968 when it suffered massive outflows of bullion trying to frustrate free market forces that were manifesting themselves as insatiable demand for the metal.

As there is no London Gold Pool anymore does this mean that this mechanism of selling into the fix to suppress the gold price, that was pioneered by the London Gold Pool, is defunct also? Absolutely not! Analysis of the gold price data shows quite clearly that the price of gold is being heavily suppressed by the exact same mechanism.

Fortunately the bullion bankers added the AM Fix in 1968. This means there are two times in the day when we know for sure that the gold price is being set in a clandestine procedure that is controlled by just five bullion banks.

Figure 1 Gold Market Timeline

Figure 1 Gold Market Timeline

We will examine the characteristics of the prices determined by the London Daily Gold Fixings to demonstrate unequivocally the gold price is suppressed. To do this let’s examine what happens in a typical twenty-four hour period as illustrated in figure 1. We have chosen to start and end the 24 hour period with the PM Fix. Three and a half hours after the PM Fix the Comex closes and gold trading is then predominantly conducted in the eastern hemisphere where the western bullion banks have much less influence and the market has a much higher proportion of physical metal trading than does London or the Comex. The period from the PM Fix to the following AM Fix is labeled “overnight” trading (indicated by the blue double-headed arrow). The period from the AM Fix to the PM Fix has been labeled “intraday” trading (indicated by the red double-headed arrow). The intraday trading includes most of the trading day on the LBMA where 90% of the world’s gold trading occurs. It would be fair to say that this is the time of the day most influenced by the western cartel of gold bullion banks. The “overnight” trading is the least influenced by the gold cartel. But without question the AM Fix and the PM Fix are determined by a process under the direct control of five bullion banks.

The London Fix data used in the analysis presented in this article can be found at  http://www.kitco.com/gold.londonfix.html

For purposes of demonstration let’s consider just a small sample of gold price Fix data as shown in Table 1. It can be seen that if a trader bought gold on the PM Fix on 7/26/2010 and sold it on the following AM Fix on 7/27/2010 he would have made $0.5/oz on the trade as shown in the “Overnight” column. If he were to repeat this trade every day then his gains and losses are listed in the column and would sum up to a cumulative total gain of $22.5/oz over the seven trades. If a trader bought on the AM Fix on 7/27/2010 and sold on the PM Fix on the same day he would have lost $16/oz as shown in the “intraday” column. If he were to repeat this trade everyday his daily gains and losses are as shown in the intraday column and by 8/4/2010 he would have cumulatively lost $6.5/oz. The cumulative gain or loss is recorded for each day in the columns labeled “Cumulative Intraday” and “Cumulative Overnight”

stacks_image_CD21F8BC-B8DB-45C3-AF8F-95A8B510B458

Table 1: Sample of Gold Fix Data

Figure 2 shows the cumulative gains/losses for “intraday” and “overnight” daily trades since the start of the current bull market in April 2001. This chart is astonishing. The cumulative price change between the AM Fix and the PM Fix in the last 9 years is negative $500/oz while from the PM Fix to the AM Fix it is positive $1,400/oz. What this means is that if a trader had each and every day purchased gold on the AM Fix and sold it the same day on the PM Fix he would have lost $500/oz. If he had instead bought gold every day on the PM Fix and sold it the following day on the AM Fix he would have made $1400/oz. (these calculations exclude fees and commissions). One could go further and say that if a trader had shorted gold on the AM Fix and covered the short on the PM Fix and then bought gold on the same PM Fix and sold it the following morning on the AM Fix and repeated this every day over the last 9 years the trader would have made $1,900/oz; a buy and hold strategy by comparison would have gained only $950/oz. ($250/oz gold price in 2001 to $1200/oz in 2010).

stacks_image_95632297-89D4-4271-B7DB-548B16FC6BD6

Figure 2: Cumulative Intraday Change & Overnight Change 2001-2010

The change in price between the AM Fix and the PM Fix are cumulatively making a trend which is increasingly losing money in a very strong bull market! Clearly the fixes are not being set to “clear the market” but are being manipulated to suppress the gold price. In figure 3 the same chart as figure 2 is shown but with the right-hand scale inverted.

Same Chart as Figure 2 with Right-hand Scale Inverted

Figure 3: Same Chart as Figure 2 with Right-hand Scale Inverted

What this shows is that the more gold rises over night in essentially Asian markets the more it is sold down into the PM fix. This was exactly the modus operandum of the London Gold Pool but now it is being done covertly.

Cross-plot of Cumulative Intraday
Figure 4: Cross-plot of Cumulative Intraday Gold Price Change & Cumulative Overnight Gold Price Change (2001-2010)

Figure 4 is a cross-plot of the cumulative intraday gold price change against the cumulative overnight gold price change. The chart shows that the cumulative amount that gold has declined between the AM Fix and the PM Fix at any time in the last nine years displays a linear correlation with the cumulative amount that gold has risen from the PM Fix to the following AM fix for the same period. The correlation coefficient R2is 0.95 which is very close to a perfect correlation of 1.0.

This shows that someone is consistently selling down the PM Fix and the amount of the cumulative sell down is almost perfectly linearly proportional to the cumulative amount by which gold trades up overnight. That can not happen by chance.

UP & DOWN Days for Intraday & Overnight

Table 2: UP & DOWN Days for Intraday & Overnight

Table 2 shows the total number of up days and down days for both the intraday and the overnight trading from 2001 to 2010. There is a striking contrast. In fact there is almost a mirror image where the number of up days overnight is very similar to the number of down days intraday. The probability of getting this contrasting result at two different times in the same 24 hour period, in the same commodity market, and over a 9 year period is approximately one in 2.6 x 1031. In other words it is practically impossible for such a divergence of data to occur by chance, let alone for the divergence to have a nearly perfect correlation.

This is in fact a very sophisticated market manipulation that is conducted to minimize the chances of being noticed by a casual observer. In Table 1 it can be seen that gold is not systematically sold down the day following an overnight rise. It is programmed and executed over several days which is why it is only clearly revealed by looking at the cumulative changes over time. In figure 5 it can be seen that the AM Fix data and the PM Fix data appear to almost overlay. This is because the average difference between them is managed.

stacks_image_595A8D08-93A3-46F0-A311-D46189B79F33

Figure 5: AM & PM Fix (2001-2010)

Figure 6 shows the daily difference between the AM Fix and the PM Fix charted as a percentage change from 2001 to 2010. It shows that a staggering 88% of the data fall in the minus one percent to plus one percent range. Equally surprising 98% of the data lie in the minus 2 percent to plus two percent range. This also can not happen by accident. The gold price has increased 400% in nine years yet the percentage daily price range between the AM and PM Fixes remains locked largely in a 1% band. This is why the AM & PM fix price data appear to overlay in figure 5 because the daily variation is tightly controlled. This could only be achieved by market interference.

stacks_image_E004BA95-3262-4D18-A15C-8FE43EB8269D

Figure 6: Intraday Percentage Price Change (2001-2010)


The inescapable conclusion is that some entity or entities are deliberately suppressing the gold price between the AM Fix and the PM Fix and that this suppression is calculated to proportionately counter the cumulative gains in price achieved in the Asian markets that trade at some time in the period after the prior day PM Fix until the following AM Fix. Such a consistent manipulative effort would necessarily involve entities with access to large amounts of gold; this implicates central banks as they are the only entities with large hoards of gold and furthermore they have a motive for suppressing the price of gold which is to hide their mismanagement and debasement of their national currencies. Furthermore the five bullion banks who conduct the Fix would have to be complicit because by definition they are responsible for determining the clearing price on the Fix so they must be aware of the impact on price of the selling activities of the entity or entities who are offering gold in such large quantities that it causes such price aberrations. As the central banks do not trade themselves it is more than likely that some or all of the banks involved in the Fix also act on behalf of Central Banks. What is irrefutable from this analysis is the gold market is not “fixed” it is “rigged”!

The suppression of the gold price is achieved in three main “theaters of war”:

1) The LBMA unallocated gold dealing is a fractional reserve operation with a reserve of probably less than 3%. This is largely a paper gold market that masquerades as a physical gold market. Palming off the unsuspecting investor with unallocated gold with a very low reserve ratio prevents the investor’s money from chasing real physical bullion which inherently acts as a price suppression mechanism (see my recent article Proof of Gold Price Suppression for more details).

2) For the investors who insist on having physical bullion it is important to suppress the price to dissuade them from thinking it is a good investment. As demonstrated in this article this is done by selling gold into the PM Fix to counter the rise in the price that occurs in the physical markets of Asia. This is exactly the same tactics as employed by the London Gold Pool of the 1960’s.

3) The large bullion banks, most notably JPMorgan Chase and HSBC sell short on the Comex inviting other commercials to join in the short selling binge to create frequent waterfall drops that wipe out speculators and serve as a cold shower for those who are bold enough to make leveraged bets that gold prices will rise.

Additional and complementary measures include the establishment of largely unbacked Gold Exchange Traded Funds (ETF) that serve to divert demand away from the real metal. OTC derivatives that are used to hedge the essentially naked short exposure that exists by virtue of the fractional reserve nature of the massive unallocated gold market.

The London Gold Pool failed due to insufficient gold to meet demand. In those days the paper market was not as dominant. By contrast it is through selling massive amounts of paper gold that the gold cartel has managed to keep the lid on its current price suppression scheme. But therein they have unwittingly planted the seeds of their own demise. I estimate that 45 ounces of gold have been sold in unallocated accounts for every one ounce that exists in the vaults. When just a fraction of these investors ask for their gold there will be a run on the bullion banks of epic proportions. When 45 claims go looking for one ounce of physical gold the rise in bullion prices will be breathtaking.

If you own unallocated bullion you likely only have a claim to about 2.3% of what you think you own. The window of opportunity to get your investment to be 100% bullion is closing rapidly.

This article has shown that physical gold is being dumped into the PM Fix to contain its price in a covert version of the 1960’s London Gold Pool. The result of the failure of the London Gold Pool to suppress gold was an appreciation of the gold price from $35/oz to $850/oz; a similar percentage today would carry gold to almost $30,000/oz. This is not a price forecast but an indication that when free market forces have been frustrated by market manipulation for a very long time the equilibrium price can be many multiples of the suppressed price and the rise is typically rapid when the suppression is overcome. There are many growing signs that suggest the gold manipulation scheme is coming unraveled. The onset of an epic “gold rush” is fast approaching.

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DrKrbyLuv
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Re: Gold market is not "Fixed", It's rigged

John99,

Thanks for the great dig. 

Larry

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investorzzo
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Re: Gold market is not "Fixed", It's rigged

Well done John99, Here's one for you. Jon

The Best Gold Interview of 2010

Jeff Clark, Casey's Gold & Resource Report

Much of what passes for “insider” information these days is often conspiracy-edged or largely conjecture. True inside information is actually hard to come by. So what follows is the refreshingly candid and uncut version of my talk with a first-hand participant in the murky and little-understood world of gold bullion, mints, and bullion dealers.

Customarily, when considering a company for a potential recommendation, I hold a series of discussions with management. It was during one of these vetting procedures that I spoke with Andy Schectman of Miles Franklin – and heard some disturbing reports about supply that every investor should know. Andy is a bullion seller, so you’re welcome to take his comments with a grain of salt. On the other hand, what he sees week after week and what he hears from his high-level industry contacts might just make you pull back on that salt shaker and re-inventory the number of ounces you own...

The Best Gold Interview of 2010

Jeff Clark, Casey's Gold & Resource Report

Much of what passes for “insider” information these days is often conspiracy-edged or largely conjecture. True inside information is actually hard to come by. So what follows is the refreshingly candid and uncut version of my talk with a first-hand participant in the murky and little-understood world of gold bullion, mints, and bullion dealers.

Customarily, when considering a company for a potential recommendation, I hold a series of discussions with management. It was during one of these vetting procedures that I spoke with Andy Schectman of Miles Franklin – and heard some disturbing reports about supply that every investor should know. Andy is a bullion seller, so you’re welcome to take his comments with a grain of salt. On the other hand, what he sees week after week and what he hears from his high-level industry contacts might just make you pull back on that salt shaker and re-inventory the number of ounces you own...

Jeff Clark: Andy, tell us about the kinds of contacts you have in the industry and where you get your information.

Andy: I’m associated with two of the six primary mint distributors in the United States. There are only six primary precious metal distributors here because the qualifications are very difficult to meet. Aside from having $100 million in annual sales, you have to extend a $50 million line of credit to the U.S. Mint, and very few companies can do that. So in working with these companies, I’m privy to information that many others aren’t.

Jeff: So, what have you been hearing from them about supply for physical gold and silver?

Andy: I think in order to properly characterize what’s happening in the industry, it's important to start from a big-picture perspective, which is that by and large the masses in this country are not involved in precious metals. In my experience, the move we've seen in gold over the last decade has primarily been from international investment – sovereign wealth funds in the Orient, petrodollars in the Middle East, India buying from the IMF, Russia and Japan accumulating, etc.

Most U.S. investors have lived through nothing but prosperity and good times, where they perhaps didn’t think they needed to own gold – but I think the rest of the world isn't as optimistic about the future. So when you talk about supply, it's important to acknowledge that most people in this country don't own any gold and silver. To me, that's what should really alarm people.

Jeff:  Tell us how you would characterize supply right now.

Andy: Fragile. Availability of product changes almost weekly.

But it’s worse than that. When the market plunged 1,000 points in one day last month, two German banks bought about 35,000 or 40,000 one-ounce coins and cleaned out the Royal Canadian Mint overnight. Think about that: two banks cleaned out one of the world’s preeminent mints in one day.

Then you have the Austrian Mint recently announcing they were running into supply issues. And the U.S. Mint has been the model of inefficiency for the last several years. They have been either reluctant or unable to meet demand when it comes to Gold Buffalos, Platinum Eagles, and fractional Gold Eagles. They issue dribs and drabs of them, but certainly not enough to meet demand.

Jeff:  And they frequently run out.

Andy:  They frequently run out, they frequently have delivery delays, and it's a situation where very quickly we could see major disruption in the supply chain.

Jeff: We saw supply constraint in 2008, where dealers were running out of product. Do you think we’re headed there again?

Andy: I do. In 2008, when gold dropped from $1,000 to $700 very quickly, all product worldwide disappeared. Within weeks the U.S. Mint was shut down. The Canadian, Austrian, and Australian Mints were all eight to 12 weeks back-ordered or shut down. The Australian Mint stopped taking any new orders in July or August for the rest of the year. The Rand Mint, for the first time ever, sold out of all its product. One wealthy Swiss businessman flew his own 747 there and cleaned them out.

So product was impossible to get, but not just from the primary mints; even the refiners that made 100-ounce silver bars couldn't get them. No one could get anything, and it was a very scary time if you owned a gold company. There were many days I sat at my desk wondering how I was going to get product tomorrow, and there were times we couldn't take orders whatsoever. And that comes from a company that’s done over $100 million in sales, is a member of the certified exchange, and that has contacts that run very deep in the industry – and I couldn’t get anything.

A friend of mine who owns a very prominent gold and silver company in Colorado has a store front, and back then he told me, "I want to put a sign on my window that says, ‘All we do is buy, we don’t sell,’ because one person will come in there and clean me out and there’s nothing to be had.”

So what I think is ahead comes from that experience. If you factor in that very, very few people in this country have even held a gold coin – let alone own any gold, or understand the reasons to own it, or will even accept the arguments for owning it – I think the primary distinguishing characteristic of this market will be that people won’t be able to get product when they want it. The rising price in and of itself will not be the main hurdle. For the most part, people will overcome price, because they’ll want to own it. The real issue will be getting product in a timely fashion, and that will become difficult for the average American.

Jeff: What about supply from those selling coins and bars who bought at lower levels? Doesn’t that increase the available supply?

Andy: This is what I believe is a distinguishing feature of this market: there is a total absence of a secondary market. There isn’t one. Period. In years past, we used to do a lot of business with people wanting to sell. Today, virtually no one is selling their coins back to us. In fact, for every 100 transactions we have, maybe one is a seller – the other 99 are buyers. Our largest supplier, who provides over 60% of all bullion to the U.S. market, told me earlier this month they have days without one single buy back. And this is from the largest supplier in the U.S.

Jeff: Why do you think no one’s selling?

Andy: People are afraid. They’re afraid of what's happening geopolitically, economically, fiscally, and want to hold on to their gold. As they should, because this is exactly the kind of circumstance gold is for.

So I would argue that as gold and silver creep higher, there will be more and more buying and less and less selling. And less selling means less product for buyers.

When you look at the fact that there is no secondary market, and then you throw into the mix that the mints are already running into production problems, and then add the troubles in Europe, which could easily spread, I think it’s easy to see how demand could outstrip supply. I assure you, there's an awful lot of gold acquisition going on in other countries – the Swiss and Germans, for example, see the handwriting on the wall. They were buying everything up when the European crisis broke. It was bedlam for awhile.

And if all of a sudden people here wake up and feel they really need to own gold but can’t get it, we’ll be right back where we were in 2008.

But to your point, yes, nobody is selling anything right now and almost anything you buy will be dated 2010. That’s because there are no backdatedcoins to be had virtually anywhere. Maybe 20 here or 50 there, but nothing on a meaningful basis.

Jeff:  It sounds like regardless of what’s going on in America, global supply could be in jeopardy if this trend continues.

Andy: Absolutely, especially with the fact that there is no secondary market. Really, the people who enter the game late are going to be at the mercy of the mints. And if the mints run out of supply, or just stopped selling for whatever reason, it's “game over” for those who want to accumulate. Right now there's as good a supply as I've seen in a couple years, and that's at a time when we've already witnessed the Royal Canadian Mint running out of gold for a week or so, the Austrian Mint also running out of product, and the U.S. Mint rationing Silver Eagles for a short time.

Jeff: And you’re calling this a good supply market?

Andy: Yes. It’s as good as we've seen in a couple years.

Jeff: That's scary.

Andy: I don’t think you’re exaggerating by saying that. And the message is, “Buy now while it's still available.” I know it may sound like I'm trying to sensationalize it, but I'm really not. Based on what I know, it’s my opinion that if 5% of this country put 5% of their money into gold, there would be nothing left tomorrow morning. Supply is that small compared to the tremendous amount of money that's out there.

Here’s another example. I had a meeting with a money management company here in Minneapolis that manages some of the oldest money in the entire country, literally billions of dollars. And when I spoke with them, I discovered the principals of the firm had never held a gold coin. They asked me questions that were as rudimentary as what I would get from a complete novice. By the end of the conversation, they said they would start with a $5 million order. I later learned this was a small order for just one of their clients. It was just dipping a toe in the water for these people.

Well, it won’t take too many of these kinds of people waking up to gold to drain the supply chain. Most of the wealth in this country is driven through money managers, and at some point these people will tell their managers, "I don’t care what the price or premium is, get me gold." When they come knocking in large numbers like that, the supply chain will dry up overnight. I know this to be true. If we see an event that drives money managers to buy physical gold, the supply will be gone.

Jeff: Some of that money is already going into the ETFs.

Andy: Yes, but not when you consider the total capital that’s available. And keep in mind that the prospectus for GLD and SLV state that, more or less, you can’t take possession of the metal. So, do you “own” gold if you have shares in GLD or SLV, or any ETF, for that matter? If you can’t put the coin or bar in the palm of your hand, the answer is no.

Jeff: Are you seeing any difference between gold and silver? Is one more difficult to come by than the other?

Andy: We've seen a lot of demand for silver, probably more so than gold, and the U.S. Mint has already rationed Silver Eagles once this year. Junk silver bags are becoming much harder to get. And I think the higher gold goes, the faster silver will disappear. At some point the American public will realize they should have some gold and silver, and we could see a situation where the gold price could get out of reach for some investors. Those people will turn to silver and, as a result, it will probably be tougher to get than gold.

Jeff: If supply gets scarce, do you expect premiums to shoot up?

Andy: Absolutely. In 2008 the premiums were astronomical. Silver Eagles were $5.50 to $6 over spot. Gold Eagles were $100 to $150 over spot. The premiums went parabolic. That could easily happen again.

Jeff: And that was due to constrained supply.

Andy: Yes. When the price fell off the table, everything disappeared quickly. That’s counterintuitive, I know, because logic would dictate that as the price of something falls, demand is waning. But as the price fell, I think it became more attractive to large interests around the world, and everything got gobbled up fast.

Looking ahead, I can tell you that the only way you'll see premiums stay where they are is if the mints are able to keep up with demand, and based on what I see I would argue there is no way they can. They can’t even keep up now. On top of that, as I stated, people aren’t going to sell their gold this time unless they absolutely have to, so there won’t be any supply coming from sales.

Jeff: So your message to someone who owns little or no physical metal now is what?

Andy: Acquire as many gold and silver ounces as you can. In the end it’s not about price paid, it's about number of ounces. View the supply issue as critically as you would the price, because I believe that more than anything else, the lack of available supply will mark this industry.

Jeff: Excellent advice, Andy. Thanks for your input.

http://www.caseyresearch.com/displayCdd.php?id=509

John99's picture
John99
Status: Gold Member (Offline)
Joined: Aug 27 2009
Posts: 490
Re: Gold market is not "Fixed", It's rigged

Another excellent article, investorzzo.

In the ZH article, I believe Adrian Douglas has found the proof that gold bugs have been screaming about for years. It is good to shed light on dark places.

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taxed2death
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Posts: 22
Re: Gold market is not "Fixed", It's rigged

Great articles guys,

Generally I buy my metals online,but the other day I stopped by a coin/jewelry shop near my home just to check it out.I was very suprised to see some one oz gold bars and 10 oz silver.The shop owner told me they arent moving as fast as coins.His shop is modest so I was also suprised that his mark-up over spot was less than any price I could find online.Just food for thought for people like myself who buys small quantities regularly.Outside forces cannot control the market,they can only manipulate it for a period of time.Sooner or later it will take on it own life again.

John99's picture
John99
Status: Gold Member (Offline)
Joined: Aug 27 2009
Posts: 490
Re: Gold market is not "Fixed", It's rigged

Follow up aritcle by same author, and excellent reporting as well.

GATA has received bad press by some of the CM members in the past, and am happy to see this revelation coming from this source.

Get your metal while you can!

(http://www.zerohedge.com/article/guest-post-failure-second-london-gold-pool)

Guest Post: The Failure of the Second London Gold Pool

Tyler Durden's picture

Submitted by Tyler Durden on 08/19/2010 10:36 -0500

Submitted by Adrian Douglas of Market Force Analysis

The Failure of the Second London Gold Pool

This article is a sequel to my article entitled “Gold Market is not “Fixed”, it’s Rigged” which is essential reading before reading this article. The previous article demonstrated that had a trader consistently bought gold on the London AM Fix and sold it the same day on the London PM Fix and repeated it every day from April 2001 through to today the cumulative loss would be $500 per ounce. Yet gold has been in a bull market during that time and a “buy and hold” strategy over the same time period would have returned a gain of $950 per ounce.

I have termed the arithmetic difference between the PM Fix and the AM Fix the “intraday change.” Figure 1 shows the evolution of the cumulative intraday change from 2001 to 2010 along with the gold price evolution as expressed by the London PM Fix price.

Figure 1 Cumulative Intraday Change & PM Gold Fix Price (2001-2010)

This chart shows that an entity (or more likely several entities) is consistently selling gold into the PM Fix in such large quantities that the selling suppresses the gold price to the extent that the cumulative intraday change is negative while the gold price has been increasing. The entity doing such selling must have access to a large amount of physical gold and must not be interested in selling for profit. The only possible culprit is a central bank or several central banks. As the central banks do not trade directly, there must be bullion banks who are acting on their behalf.

The London Gold Fix is conducted by the representatives of five bullion banks: HSBC, Deutsche Bank, Scotia Mocatta, Societe Generale, and Barclays. The “fix” is no longer conducted in an actual meeting but by conference call. The bullion banks’ representatives communicate with their trading floors and with each other during the conference call to find the clearing price at which all buying interest and all selling interest is balanced. When this price is determined the price is said to be “fixed”. This is exclusively a physical gold market activity. It is balancing the number of bars of gold for sale with the number of bars demanded for purchase at a particular price.

It follows that if buying and selling were matched at the AM Fix price but then the PM Fix price is lower, then significantly more gold is being offered for sale compared to demand at the time of the PM fixing. The trend of the cumulative intraday change in Figure 1 shows that the selling into the PM Fix is manipulative because it has consistently countered the primary trend of the market and has proportionately increased as the gold price has increased. The PM Fix is the target for manipulation (price suppression in this case) because it stands as the global bench mark price at which physical gold trading is done until the following AM Fix, -- that is, a period of 19 ½ hours each day.

Though the official London Gold Pool disbanded in 1968 when it suffered massive outflows of bullion trying to frustrate free market forces that were manifesting themselves as insatiable demand for the metal, someone is now operating, albeit covertly, a second London Gold Pool. However, what I will show unequivocally in this article is that this “Second London Gold Pool” is about to suffer the exact same fate as the first one did.

 

Figure 2 Peaks Marking Climax of Increased Selling into the PM Fix

In figure 2 the same data as in Figure 1 is presented except it has been truncated to October 2008. The solid blue line shows that there is a long-term trend in the evolution of the intraday price change that is responsible for the general suppression of the price. However, what is also apparent is that there are many occurrences of the cumulative intraday price change deviating downward from this baseline trend and returning back to the trend. These are periods of concerted and increased dumping of gold into the PM fix. The red vertical lines mark the turning points of maximum departure of the cumulative intraday price change from the solid blue line that defines the average long-term trend. In other words, these lines mark the climax of selling into the PM Fix. It can be noted that these lines intersect the PM Fix price curve at almost exactly the lows immediately following a price peak. This means that when the intensity of selling into the PM Fix increases (an increasing downward excursion of the blue curve away from its trend line), the gold price makes an intermediate top, and when the intensity of selling into the PM Fix recedes (the blue curve returns toward its trend line), the gold price makes a bottom.

This is not a matter of traders selling into the market to take profits when the price reaches an interim top, because the selling is consistently forcing the PM Fix price to be lower than the AM Fix even during price rallies. The selling is clearly conducted such that when considered over several days buying between the fixes is not allowed to be more dominant than selling. It can be seen that after each selling climax buying emerges which carries the cumulative intraday change back toward its long-term negative trend line (solid blue line). I would speculate that at least part of this buying is made by the same entities that did the selling.

Figure 3 Gold Price Declines Induced by Increased Selling into the PM Fix (2001-2008)

Figure 3 shows how each episode of increased selling into the PM Fix had the desired results for the central banks and the anti-gold cartel of bullion banks: The gold price declined from the green dot to the corresponding red dot.

Figure 4 Gold Price Declines Induced by Increased Selling into the PM Fix (2001-2010)

In Figure 4 the data from October 2008 to August 2010 has been added. The gold price peaked on 2/20/2009, marked by the green dot labeled “1”. True to form massive selling then emerged in the PM Fix on a continual basis. The intent was probably to make the gold price decline along the trajectory indicated by the red dashed line to suppress it back to the long-term trend defined by the black dashed line. The cumulative intraday price change would then have most likely returned to the long-term trend line (solid blue line) on a trajectory indicated by the blue dashed line.

But things have gone horribly wrong for the manipulators. The gold price did initially decline to the point marked by a black dot, which occurred on 4/24/2009; but then the gold price abruptly reversed upward. As a consequence the manipulators ramped up their dumping of gold into the PM Fix as shown by the plunging cumulative intraday price change.

This has continued for 16 months and the gold price has stubbornly resisted these attempts to overwhelm free market forces of strong physical gold buying. To date the climax of the selling into the PM Fix occurred on July 28, 2010 and the gold price on that date is marked by the yellow dot and labeled “2”. It is $220 higher than the point “1”, where increased selling into the PM Fix commenced.

This is the first time in nine years that the cycle of increased selling of gold into the PM Fix has failed to bring down the price of gold. The arrogant central bankers and their bullion banking cronies are reliving their nightmare from the London Gold Pool of 1960’s, where they erroneously thought they could out-gun free market forces.

What is intriguing is what happened on 4/24/2009, the date marked with a black dot, which unleashed massive new physical demand that has overwhelmed the scheming Western central banks. On April 24, 2009, China announced that it had accumulated 454 tonnes of gold over the previous five years, bringing its reserves to 1,054 tonnes. China had instantly let the genie out of the bottle. If China had been acquiring gold secretly for five years, then every other central bank and large investor was behind the curve. Serious buying immediately appeared but this was clearly buying by a very different type of buyer. These buyers are not only insensitive to the anti-gold cartel’s intimidation tactics of dumping gold to suppress the price but they actually welcome it as it allows them to buy more gold at discounted prices.

Figure 5 Gold price Suppression is Failing

In Figure 4 the solid blue line trend indicates that there is a continuous “background” suppression of the gold price that drives down the PM Fix with respect to the AM Fix. In addition there are periods of increased selling activity that cause the cumulative intraday price change to deviate below the solid blue line trend. In Figure 5 the blue curve represents only the deviation from the declining trend. This means that the curve represents periods of increased intensity of selling into the PM Fix. The baseline is the dashed horizontal blue zero line which means that at that level the suppression of the gold price is uniform and corresponds to the data following the solid blue trend line of Figure 4. The downside excursions from the horizontal indicates periods of panic dumping into the PM Fix that coincide with “flare ups” in the gold price. Once the manipulation has succeeded in knocking back the gold price to what is presumably a more acceptable rate of ascent for the manipulators, the blue curve returns to the zero level again.

However, it is clear from the chart that since 4/24/2009 (marked with a vertical dashed black line) the anti-gold cartel has entered a new phase. It is their equivalent of “Houston, we have a problem.” And do they ever! They have ramped up their dumping of gold into the PM Fix to a level that exceeds even what was dumped to bring down the price in 2008, but the gold price refuses to yield. Judging by the way the market was managed until 2009, if the gold price could be brought back into line, it would already have been done.

The fuse is lit. This is a covert London Gold Pool that is about to fail as catastrophically as its predecessor did in 1968.

Notice how large and aggressive the selling of gold into the PM Fix was between the points marked by “A” and “B” in Figure 5. This corresponds to a period from 12/2/2009 to 3/30/2010. The bullion banks would need a lot of extra bullion to conduct such an attempted “shock and awe” bombing of the gold market.

Where did this gold come from?

I wrote an article recently entitled “gold manipulation scheme is coming unraveled”. This article discussed how 346 tonnes of gold that were part of a hushed-up swap arrangement between the Bank for International Settlements (BIS) and more than ten bullion banks were essentially a bail-out for the bullion banks concerned. We now know why these banks desperately needed such a vast amount of gold. Together with approximately 15 tonnes of gold being sold surreptitiously by the International Monetary Fund (IMF) each month since February this year, it is new ammunition in the war they are waging on the gold price.

The BIS gold swap occurred in the first three month of 2010 which falls in the period marked by “A” and “B” in Figure 5. The evidence of significantly increased dumping of gold that coincides with the timing of the BIS gold swap (the largest in history) is damming, to say the least. However, the mobilization of this gold is futile. When anything in a market goes parabolic, it is unsustainable. The bullion banks on behalf of their Western central bank masters are dumping gold into the PM Fix at such a rate that the cumulative daily price change between the AM Fix and the PM Fix is becoming more and more negative in a parabolic blow-off.

It looks like the demise of the gold price suppression scheme is very close at hand. Over the years GATA has uncovered a lot of anecdotal and circumstantial evidence that the Western central banks have been dishoarding gold at an unsustainable rate in order to suppress the price. This is the first concrete evidence that, just as GATA has long been predicting, the gold price is set to blow up because physical demand for gold is overwhelming the manipulators’ ability, or willingness, to provide it.

The result of the 1968 failure of the London Gold Pool to suppress gold was an appreciation of the gold price from $35 to $850 per ounce. A similar percentage today would carry gold to almost $30,000 per ounce. This is not a price forecast but an indication that when free market forces have been frustrated by market manipulation for a very long time, the equilibrium price can be many multiples of the suppressed price, and the rise is typically rapid when the suppression is overcome.

The opportunity to acquire bullion before prices go dramatically higher is disappearing fast.

Adrian Douglas
Editor of Market Force Analysis
Board Member of GATA

 

SteveW's picture
SteveW
Status: Gold Member (Offline)
Joined: Jan 21 2010
Posts: 490
Re: Gold market is not "Fixed", It's rigged
John99 wrote:

GATA has received bad press by some of the CM members in the past, and am happy to see this revelation coming from this source.

The bad press followed a debate between the author of this article (Adrian Douglas) and Jeff Christian which Jeff won convincingly. Of course the loser of a debate does not necessarily support a position that is false.

 

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