Guest Post: From $100 Million To $2.16 Billion In Under Ten Years - Proposing an Overnight Gold Fund

Tyler Durden's picture

Submitted by Sam Kirtley of SK Options Trading

Proposing an Overnight Gold Fund

There is much debate within the precious metals industry
regarding the alleged suppression, or at least manipulation to an
extent, by either central banks or the proprietary trading divisions of
large banks, or a combination of the two.

In April the US Commodity Futures Trading Commission CFTC fined Hedge
Fund Moore Capital for manipulation of the New York platinum and
palladium futures market, as the firm was found to be “banging the
close”, which involves entering orders in a manner designed to inflate
the closing price, which other various derivatives contracts could be
based on. So that is irrefutable evidence that the precious metals
futures market is, at least to some extent, being manipulated. However a
large concentration of this debate is based not on platinum and
palladium, but on gold and silver, and particularly gold.

Numerous hypothesises have been put forward as to the motive behind
alleged suppression of the gold, ranging from a central bank conspiracy
to keep gold prices low, to large trading banks simply exploiting their
market dominance for easy profits, or even a combination of the two with
the central banks and large bullion trading operations working together
in some kind for cartel to keep gold prices low. This article does not
intend to discuss the merits of these theories, however plausible or
implausible various parties believe them to be. Instead we will focus on
finding out if a discrepancy exists and if it does, can one take
advantage of it and use it for profitable trading strategies.

Firstly we would like to recommend an excellent article by Adrian
Douglas, editor of Market Force Analysis and a GATA board member
entitled “Gold Market is not “Fixed”, it’s Rigged” which goes into great
detail on the statistics behind the difference between how gold trades
between the AM and PM fix, and how it trades from the PM to AM fix. The
very fact that there appears to be a significance difference sets our
alarm bells ringing. Whether gold trades in New York, London, Tokyo or
Timbuktu, gold is still gold and so one would expect that it would trade
in a similar fashion across these timeframes over a long period of

If we take the change in the gold price from the AM to PM fix
(intraday gold) compare it to the change in the gold price from the PM
to AM fix (overnight gold), we can see the startling difference between
the two periods of trading. We will demonstrate this by showing what
would have happened if one had theoretically invested in the intraday
gold market from 2001 to present.

Starting in 2001 with an indexed based at 100, the chart below shows
what would have happened to that investment of 100 if it had been used
to purchase gold at the AM fix and sell gold at the PM fix, replicating
the daily percentage performance of gold in the intraday market.

Long Intraday Gold Index

As the chart above shows, the performance is dismal. For example a
hypothetical gold investment fund starting with $100m in 2001, and using
it to buy gold at the AM fix and sell it at the PM fix would now be
left with just $40million, a 60% loss in just under ten years. Over the
same time period gold prices have risen over 350%.

From this we can infer that in fact it was possible to make money
shorting gold everyday for the last decade. If a hedge fund were to have
sold gold at the AM fix and covered that short position at the PM fix,
for each day of this terrific bull market run in gold, that fund would
have doubled their starting capital.

Short Intraday Gold Index

This appears to be a remarkable result, as one would presume that
shorting gold everyday during a period where the yellow metal has risen
350% would have devastated any portfolio, not caused a 107.5% increase.
Those who do not believe in theories of gold price suppression, often
cite the fact that gold prices are at an all time high as a major piece
of evidence to discredit any suggestions of price suppression. After all
how can the price be being suppressed if prices are sky rocketing?

Well the answer to that question is that if the gold traders at the
large banks accused of such manipulation are just trading during the
intraday market between the AM to PM fix, they are not too concerned
about how gold trades overnight (provided they are not holding positions
overnight of course). What matters is how gold trades during this
intraday period, and if more often than not gold is falling during this
time, and more often than not the banks are short gold during this
period, then they are making money regardless of the overnight price

It would appear that subtle manipulation is more likely that blatant price suppression.

So the question on the mind of many gold bulls might be; how do I
remove this downward manipulation during the intraday period? Even if I
do not believe in manipulation, suppression or any other conspiracy
theories, how do I eliminate this statistical fact that gold is
underperforming during the intraday period?

The answer is to buy gold at the PM fix and sell it the following day
at the AM fix, or more simply put, just be long gold overnight.

Long Gold Overnight Index

The graph above shows how rewarding this strategy would have been,
with a return of 947% in less than ten years, a return 2.7 times greater
than the 350% that would have been made simply buying gold in 2001
holding until now. With many investors and traders looking for the
best way to lever their gold returns, from pouring over drill results to
identify the best gold stocks to experimenting with leveraged gold ETFs
and ETNs, a more simple solution could be simply to only have long
exposure to gold overnight.

For the more cavalier traders, going long gold overnight and then
short gold for the intraday period, makes for an even more profitable

Short Intraday Long Overnight Gold Index

Consider a hedge fund starting in 2001 with $100m, with the strategy of
being long gold from the PM to AM fix, and short gold from the AM to PM
fix. That hedge fund would be worth $2.16billion today, before any fees
and expenses. This should be enough to catch any investor’s attention.
Even without shorting gold during the intraday period, limiting
exposure to gold to just the overnight period enhances returns enough to
justify using this as a basis for a trading strategy.

As stated at the beginning of this article, our focus is not what or
who is causing this discrepancy nor any potential motives for such a
discrepancy, but what action to take in order to profit from it.

In addition to incorporating these patterns into our trading strategy
at SK Options Trading, we are also looking into the feasibility of
launching some form of fund to take advantage of the opportunities
discussed in this article. As part of this feasibility study we are
looking to gauge investor interest and so would welcome any comments,
suggestions or ideas that people may wish to contribute, simply email

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nhsadika's picture

This is unbelievable, thanks for the article.

septicshock's picture

This has been pointed out here on zero hedge before, not a new article premise.

unwashedmass's picture

start this baby up...i'll write the TV commercials for it. if our government is happy to turn a blind eye to JPM's machinations, i don't know why we shouldn't let the entire country in on it and we can all profit....

Pladizow's picture

This is based on Adrian Douglas' from GATA and Market Force Analysis work.

First come the inovators, then the imitators, then the idiots.

midtowng's picture

But who would be dumb enough to be on the other side of this trade? The down-during-the-day-up-at-night price movement has been well-known for years.

OpenEyes's picture

I've been watching this spread since 2006 and had always assumed that the big international players were doing this already.

tmosley's picture

A very clear and concise argument pointing toward market manipulation.  Thanks.

The gold trolls won't understand it, though.

Johnny Bravo's picture

And yet, you continue to buy into the "manipulated" market.

What's the definition of insanity again?

Doing the same thing over and over and expecting different results?

If I "knew" something was manipulated, I would either:
1. take advantage of the manipulation
2. abstain from that market altogether

So why do you fight the trend, and then complain about it? 
(and pay an 8% premium to fight what you know to be true on top of all that!?)

JP McManus's picture

People buying gold believe the manipulation will end, that's how they're taking advantage of it.

Delivered physical is not the same as spot.  Thus, the price difference.  If you believe it is, you'll make millions buying it at spot and delivering it at an 8% premium.

Johnny Bravo's picture

First of all, when has the manipulation EVER ended?

But now it's going to?  Hmmmm... yeah.... 

That's just speculation.  You have to take reality into account.

Nobody wants gold to go higher, except for retail investors and kooks.
Retail investors and kooks always lose in the end.

JP McManus's picture

I didn't say manipulation has ever ended.  I said people that are buying gold believe that will.

Hephasteus's picture

Why believe the manipulation will end when you can force it.

SWRichmond's picture
  1. Gold is proven to be manipulated downwards
  2. Gold is proven to rise significantly anyway
  3. The conditions that make gold a good "investment" have not abated, they have worsened
  4. Obvious conclusion: buy and hold gold.

Even you should be able to understand that.

Quintus's picture

Trading costs would have a major impact on those illustrated returns.  You wouldn't achieve anything like that rate of return in the real world.  


Good job on highlighting the rather obvious manipulation that seems to be clear to everybody but the CFTC though.

tmosley's picture

That's why you have a fund do it.  Make two big trades each day.  It shouldn't cost that much.

Johnny Bravo's picture

What do you need a fund for?  You can make the trades on your own with GLD, which is "gold" or by using PHYS.

Why pay fees to a fund?

JP McManus's picture

London AM Fix is 10:30 AM GMT.  I've never tried trading GLD or PHYS at that time, but I'd guess it would be more difficult.

scriabinop23's picture

Believing that some form of efficient markets does exist,  I'd like to see this strategy implemented on substantial capital.  IF there were actually manipulation as many say, I'd bet this would force market behavior to change. (imagine $5-10B of gold being bought and sold every day like this)

But in the end, the performance would likely be abyssmal now that the public caught on to it.

Not to mention slippage and trading commissions undermining the whole strategy a bit. (how deep is the gold market, really?  Can $10B of gold be bought in 5 minutes without whipsawing the price 10%?)

Then imagine how everyone would game this activity before and after the fixes...


Missing_Link's picture

I'm gonna test this in TradeStation ASAP.

idea_hamster's picture

Of course, if you call the bottom perfectly, you're bound to make money.

The better question is what the return would be for the years 1991-2000.  Just holding the Au during that period would have led to a brutal loss.  But what would the effect be if you had stayed out of the London hours?  Still up?  Down less?

The past ten years have been great for gold, but trading ideas show their pedigree during times of adversity.

mephisto's picture

Thats the point. For a short gold trade these have been years of adversity, and the article finds a profitable strategy despite the overall market move.

mephisto's picture

The original article by Adrian Douglas was so good it's worth repeating.

I did the maths, these intraday divergences are huge, easily large enough to be statistically significant. I have had the trade on since I read the first piece. Its real, there's money on the floor to be picked up. So pick it up.

Sudden Debt's picture

Now where did I put that goddamn Timemachine!


memo to myself: short the market in 2007 with the proceeds en buy the cheapest puts (Banks, automotive, shipping, oil) and take over the world.

Quintus's picture

The LBMA provides historical data on the AM and PM fixings here.

Using their data, the price of Gold increased from $1,113 on 4-Jan-10(AM) to $1,237 on 26-Aug-10 (PM) i.e. a gain of $124 for the year to date.

However, if you sum the cumulative movement between the AM and PM fix, you arrive at afigure of -$84.25

So gold increased $208.25 outside London Fix hours and declined $84.25 during London hours.

That's normal, right?


zeroqpon's picture

Would be interested to see this strategy tested forward in a virtual portfolio for the next 30 days to get a better sense of daily performance. Would also be keen to learn if Silver is subject to this same phenomenon.   

Thomas's picture

The issue of volume is real: How do they cover their shorts without creating increasingly brutal last-minute short squeezes?

Sudden Debt's picture

That one is easy: Fairydust!

tmosley's picture

They likely count GLD longs as their own.

Which is why you don't want to own GLD or SLV.

Johnny Bravo's picture

That's what the rise in price "after hours" is.  It's all just one huge short squeeze.

That's the only thing keeping gold up, is the need to cover shorts.

BTW, didn't I say yesterday that the market would be up today?
And people laughed at me.

LOL at them.

Dismal Scientist's picture

Oh dear. People laugh at you because you only ever crow about calling a market up, and do not seem to acknowledge there are plenty of good reasons for it to go down (even if you make money on the short side). When it goes down, you just run away, and then claim you were profitable post event. Its not credible, is it ?

Johnny Bravo's picture

I know that there are plenty of reasons for it to go down.  And yet, it DIDN'T?

Why?  Because my reasons for it going up today were more important than your reasons why it would go down.

It doesn't matter what the reason is.  It only matters who is right.

You can look at my posts last night where I said it would be up today.  I'm not making anything up.

You can look at my posts before the last time gold when down, when it was at 1260.  I called it.  Everybody else was saying it'd go to even higher highs.

I called the uptrend from gold at 1160.  The posts are everywhere for you to see.
If you don't believe me, find them.

You can't deny that I was on last night saying we'd be up today.

I make my calls BEFORE they happen.  Everybody else can't stand that.  They just hold and pray.
You'd figure that they'd make money or something... 

Dismal Scientist's picture

OK, lets make a deal, JB. If you read my comment properly you'll understand why I am proposing the following: next time you think the market is going to go DOWN, say when that is. For equities, I mean, lets leave gold out of this. We'll listen. What pisses people off is the 'I told you so' for bull moves only.

In addition, note that I did not say in any posts what I thought the market would do 'today'. I'm not an intraday punter. What I will say, is I am currently long selected equities, commodities, cash and protection. No bonds. And I am sure as I can be that I will either sell those specific equities in the near future, or buy more downside protection.

Got it ?

thesapein's picture

It's like trying to have a conversation with someone who talks in their sleep.

thesapein's picture

nah, nah, i talk like a twelve year old, i was right, you were wrong, it doesn't matter why, nah, nah, who cares if my guesses are wrong half the time, i don't remember those times, nah, nah, nothing I say makes sense, my meds are better than yours, nah, nah, gold's not worth the metal it's printed on, nah, nah, nah

globozart's picture


Since it´s all about giving... For all of you, haters of the mainstream, you might enjoy this.
I especially like the "gold-digger" part.



Yikes's picture

I've read a lot of these "Gold market is fixed and/or rigged" articles and couldn't quite dive in.  This analysis has me testing the spring board. 


The question being what vehicle would be used to profit from it and how much would trading costs eat into the returns.  Would you use Futures or could you use GLD ETFs or something else?

truont's picture

Someone needs to make a fund based on "long overnight/short intraday" gold.

But even that would not rouse suspicion of gold shenanigans at the SEC or CFTC....

deliciousirony's picture

I wonder if this can be done with 2xshort and 2x long gold ETFs...



BrianOFlanagan's picture

Finally, we hear from someone who isn't just whining about manipulation, but is going to try to take advantage of it. Bravo! However, my sense is when you finally do start trading it, the anomaly will disappear or reverse. Markets are funny that way. But still, a great wakeup call to the conspiracy crowd, stop bitching and start making some money off the evil manipulators.

thesapein's picture

Uhm, I kind of thought that most people who were aware of the manipulation were already taking advantage of the take downs and low rates and such. The whining is more typical of the just waking up crowd who are just starting to see the problems and not yet on to solutions. Gold bugs have already found a pretty darn good solution so what would they be whining about? 

FranSix's picture

Some of the video excerpts from BNN on gold related issues.  Gold was 'in the news' this week, so much discussion:

Here's..... Jahnny Bravo!!

Joe Foster from Van Eck discusses gold miners:

Excitement over gold discovery in the Yukon(Kinross already bought out Underworld Resources this year, which had the prominent land position.  Kaminak is adjacent, so the speculation is that Kinross will be obliged to buy out the rest of the land position to fend off competitors.)

Todd Horowitz from Adrian Mesh:

I would say that gold pricing above ~$1233, and the fact it trades in moves analogous to previous years, indicates that a major rally may be in store:$GOLD&p=W&b=5&g=0&id=p22191914136&a=156853006&listNum=2

Jason Toussaint, World Gold Council:

Part 1:

Part 2:

Bear in mind that very few gold miners are making advances against the gold price, save for the most speculative plays. (Red Back mining, Osisko)  We are in a major generational bear market, so bullish prognostications on gold miners may be valid, but from the point of view of inflation-adjusted returns, may be falling behind much like everything out there.

You would have to get in at the extreme bottom, as it was in 2000, and sell a portion to cover costs, after which you sell the rest at the extreme top, or tender your shares on a buyout.  

Companies buying out junior miners have not been much to the advantage of holders of junior mining companies, since you are offered shares, not cash.  Most buyouts this year have been at major discount to fair value based on 10% of the Net Asset Value of inferred resources.

Some of the buyouts this year are Agnico Eagle buying out Comaplex, they had bought out Cumberland previously. (Both in Nunavut)  Kinross buying out Underworld, and Osisko buying out Brett Resources.  Some buyouts of juniors that have taken place during the boom were Newmont buying out a property in Nunavut, (name escapes me now)  and Goldcorp buying Golden Eagle in the Red Lake district. 


Johnny Bravo's picture

BNN?  Why would I go on BNN?

Sounds like a wannabe CNN.

Now they have BNN hocking gold to gold bugs.

Yeah, I can't wait to watch those MFL games this weekend.

LOL at fake news outlets.

ZEITGEIST's picture should go on CLN...Clown would fit in perfectly...and oh ya..don't kid yourself..we are all laughing at you....Clown Boy...

Johnny Bravo's picture

That's funny, because I laugh at you too.

Every call that is made on this site (except mine, and maybe Leo's) are consistently wrong.

S&P to 450???  Please.

No wonder people don't like Leo and I.  We're actually right.  We've already broken the cardinal rule here.
The first rule of zero hedge is.... always be bearish.  Even if the market is at generational lows.

I'll admit, I got my ass handed to me long ago by following the advice on this blog.  Never again.

Now, I use it as a contrarian indicator.

Whatever people like you say it will do, it will do the opposite.

ZEITGEIST's picture your call of gold top at 1220..due to your napkin fabrizio wave might just as well throw down some bones will be dependant on news coming in near term future...look for another European crisis to hit..bigger and more volatile than the last..look for states to start buckling like our unattended bridges and roads...look for consumers to pull back due to more deleveraging...toss in sovereign debt..and possibly war..and certain civil unrest..and dont forget money printing..and it is coming...your 1220 will be the new have no clue what you are talking about..that is why we find you laugh at I go back into hiding like last 2 weeks..we all enjoyed your field trip to the circus...One last question..what size are your clown shoes ????

FranSix's picture

JB may be right about being too true to the bearish impulse, because inflationary and speculative bubbles have been riding up and blowing out since yr. 2000.  Just look at the results of BEARX.  The Prudent Bear fund would have entirely missed the runups in oil, copper, nickel, uranium, etc. etc., but those who speculated in these items are now in the downtrend.

But I think that speculation in equities, corporate bonds, commodities, currencies is probably going to get the bear treatment in the next downdraft.

But who can you trust when nobody adjusts for inflation?

The TSX topped out at 14,000 in 2007, but measured against gold it topped out long ago, in 2000:$TSX:$GOLD&p=M&st=1990-01-01&en=(today)&id=p86904071605&a=206968740&listNum=2

How do you call a market like that?  How do you 'do' that trade?

And considering the data favouring another downdraft, would it not be prudent to avoid any speculation whatsoever and not play the mining stocks, since they too are in a bear market since 1997 vs. Gold?

Riley Wilde's picture

I had some comments on the original article here:

The analysis does not consider transaction costs, intra-day or overnight financing/carrying costs, and the extent to which the "fix" is even an easily tradable price.

The last point I am most curious about... would a bullion bank even let you deal at the AM and PM fixes in sufficient size and frequency like that?

strannick's picture


Whoever thought statistics could be so revolutionary.

Its like the salve of a morning beer and clamato to economists drunken flailings

Yo Adrian..

Go Adrian!!

Silversinner's picture

Don't trade this one,just buying the real stuff.Just keep on buying last few years.

Will not put my hard earned money in the paper ponzi sceme.Just hold the stuff

and take a add-on when the price drops Take a ride on this bull,but do not risk

being shaken off.For starters silver is just great,because of the extreme low

price entry point;20 buck and your in for a full ounce!!