Guest Post: The Failure of the Second London Gold Pool

Tyler Durden's picture

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

 

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BrianOFlanagan's picture

Once again the above proves nothing, it is the overnight trading that is more likely to be manipulated. Thus the PM price is probably the true market clearing one.

GATA = propaganda. Take with large grain of salt.

Quintus's picture

"..it is the overnight trading that is more likely to be manipulated."

Got any evidence for that statement or is that just your opinion?

BrianOFlanagan's picture

Same evidence as the above, just interpreting it with an open mind. I remember Tyler posting articles showing that SPY is up much higher overnight than intraday as evidence of TPTB manipulating it higher. Yet the same anomaly is in the gold market, and the conclusion is that it is being manipulated lower.

Why is it that the overnight trading in gold is correct and intraday manipulated, when it is just as likely to be the other way around? Maybe the powers really want a higher price?

Frank Owen's picture

Yet the same anomaly is in the gold market, and the conclusion is that it is being manipulated lower.

For your amusement:

The Architect tells Neo that there have been multiple versions of the Matrix and multiple versions of the One, a computer anomaly used as a means of control. As humanity rejected the "perfect" Matrix as well as the dystopian Matrix, the machines realized that humanity needed to be offered the power of choice in order for them to accept it. The current Matrix is flawed and remains an unbalanced equation. The One is the sum of the remainder of that flaw. The One's purpose is to return to the Source, resetting the Matrix to its prime program.

Windemup's picture

You've just stuck a mobius slip knot into my brain. It's beginning to hurt.

Cognitive Dissonance's picture

A wonderful illustration of the power of The Matrix series for those who wish to look beyond the small boxed perception we're trained and conditioned from birth to behold as the one and only reality. Thank you for downloading that little gem from the field for my review and amusement.

Frank Owen's picture

the whole speech is a bit worrisome with current affairs the way they are especially: "Otherwise, the unresolved error will spiral out of control, destroying the humans connected to the Matrix, which coupled with the battle at Zion, will result in the extinction of the human race."

Zion of course being Israel.

Cognitive Dissonance's picture

Frank,

I just posted this on another thread. Let me set it down here as an off topic intrustion. Your thoughts? :>)

http://www.zerohedge.com/article/retail-investors-dont-care-if-stocks-are-or-down-retail-just-wants-out-record-15th-weekly-ou

----------------------------

When I let my mind drift with the wind by releasing my belief system and allowing myself to ponder possibilities, I often come back to earth with one reoccurring interesting idea.

Reality is not static. Reality is the constantly changing product of our perception and beliefs. There has been this feeling I've had for awhile that the powers that be are winding us up for a climax, a crescendo of massive change that's long been in the planning stage.

I won't beat a tired horse with links or books. For those with an open mind, it's clear that the world may not be controlled but most definitely is constantly influenced, poked and prodded towards open cattle shoots and loading pens. Since the fastest way to change reality its to change perception, while I don't believe all the doom and gloom being put out by the mainstream media regarding 2012, I do know that this concerted effort is not an accident or simply the media frenzy feeding upon the latest greatest. This is coordinated and accelerating.

At the same time, the collapse of the financial system is accelerating, not so much because it's naturally decaying but because it's being pushed in that direction with deliberate actions and policies. This is also irrefutable. They're deliberately not attempting to "fix" the economic system but are in fact destroying it.

So if one wanted to shove dramatic and lasting change down the throats of the world's citizens, it most certainly must come about by using fear, massive doses of fear, blindingly black fear of the type that sends chills down your spine and puckers your ass. So one might wish to mix a huge global currency crash with predictive TV media programming of the end of the world in 2012. I suspect that if this were to be choreographed well, many goals would be achieved.

Of course, this is all just a flight of fancy on a hot August afternoon.

Frank Owen's picture

I think we're both on the same phantom page on the book of observation. The Matrix was obviously an analogy. You'll love that Bad Boy Bubby movie... If you make it past the first half hour (that movie was banned in some countries)... you will find the speech in the power station particularly interesting, but I am sure you will "get" the whole movie as well, and be touched by it as I was.

I agree with you that something is being choregraphed or perhaps being allowed to happen... sorry, have to cut this short. back later.

 

Cognitive Dissonance's picture

Bad Boy Bubby will be in my mail box when I get home. It will hit the player after the shoes come off and the email is checked.

Thanks.

Frank Owen's picture

I have a theory I would like to discuss - but not here - frank_owen@hushmail.com

You can sign up for a free account at the same provider.

thesapein's picture

It was the scenes with the cat, I couldn't watch. F that C of a movie! Of course, I'm supposed to say that.

Frank Owen's picture

I'm certainly not going to defend those scenes. According to IMDB "The feral cat killed in the movie was killed humanely by a vet, and not suffocated as depicted in the movie. The same cat was used both when it was alive and after it had been put to sleep. The kitten depicted to be killed later in the movie was not feral, and was not really killed, it was only sedated." It is unfortunate that those scenes were used as they would cause many to just turn it off right there, then again the film is really brutal throughout the first half hour or so. The film deals with a side of humanity that is thankfully rarely seen but cases do come up over and over again.

http://www.feralchildren.com/en/showchild.php?ch=twins

I would put this film in the same sort of catagory as A Clockwork Orange, which I turned off at the rape scene the first time I watched it. Sorry Adrian this stuff is pretty off-topic.

scratch_and_sniff's picture

Ever seen The Living And The Dead?...thats another mindbender.

thesapein's picture

Like Deliverance, and Clockwork Orange, the film delivers. I don't hate the films because that would be like hating the messenger.

So it kind is on topic for me. Adrian is revealing something that is disgusting, and many might be inclined to react negatively to him instead of his message.

fiddler_on_the_roof's picture

 I have been having the same thoughts in the back of my mind. is this all being choreographed ? is everything an illusion being created - may be maybe not.

Tenma13's picture

What, and their enforcers are Blackwater and Dyn Corp Mercenaries? Read an article about how these groups were used in the aftermath of Hurricane Katrina.(gut feeling says by outfits like BP too, but no proof) Would make sense. Private armies looking after private corporations. 

 

 Funny/scary side-note to the above. I recently signed up to the Parachute Regiment in the  UK, and one of the possible task we could be assigned to alongside the obvious deployment overseas, was domestic disturbances where the Police are no longer able to control a situation. Always good to know 

DarkMath's picture

"Why is it that the overnight trading in gold is correct and intraday manipulated,"

Are you a complete moron? Overnight Gold is traded in HongKong where the Fed's powers have no effect. Western Central banks don't fix the price in Hong Kong.

As for why the market has been driven higher by SPY Futures traded at night: it's cheaper. You get more bang for your buck at night when, oh, America is asleep.

Seriously "BrianOFlanagan" you've got to stop drinking the Kool-Aid brother. Go out for a long walk and clear your head.

Cognitive Dissonance's picture

Sir,

Anytime you find a Kool-Aid swiller of this magnitude one of two things have generally occurred. Either the person is a shill/troll or the person has fallen into their own naval and they can't get out.

Life Call - "Help, I've fallen and I can't get up."

http://www.youtube.com/watch?v=bQlpDiXPZHQ

 

redpill's picture

You don't think the fact that there are a shit ton of people in Asia who are purchasing physical gold on a daily basis might have something to do with it?

You do know the Chinese government has opened up retail gold stores, right?

ZEITGEIST's picture

have you always been stupid..is it something new???

doggings's picture

Maybe the powers really want a higher price?

yes of course they do, that'll be why they hold such obscene short positions and have been trying to control the price since the year dot..

honestly some people's powers of deductive reasoning are not too strong.

ZEITGEIST's picture

are you stupid just today..or is it something of an ongoing dimentia ??

thermroc's picture

No no he's right. We admit it.

Us asians have so much gold over this side of the world we don't know what to do with it. So we manipulate the price up during the day by not selling it to each other. We know that when you Western fools wakeup, you'll buy at our fiendishly manipulated higher Fu ManChu price, only gradually realising you have been duped as the day wears on. But then you forget again during the night. Soon you will have all our useless gold, and we will have all your priceless paper money. Mwaaa haaa haaa......

truont's picture

"it is the overnight trading that is more likely to be manipulated. Thus the PM price is probably the true market clearing one."

How do you figure that one? Did you just pull that out of the air?

You are right about one thing, though:
BrianOFlanagan. "Take with large grain of salt."

BrianOFlanagan's picture

I figured it through critical thinking and an open mind, something that is completely absent among the conspiracy crowd.

Windemup's picture

As Ayn Rand would have said, An open mind has not thought enough about the issue to form a conclusion or informed opinion.

Humpty Dumpty sat on a fence.

That doesn't mean you can't change your mind when new facts are presented before you.

DarkMath's picture

"I figured it through critical thinking"

All I ask Brian is that when you do this "critical thinking" you don't hurt yourself.

Cognitive Dissonance's picture

I see. In other words, when one is presented with the theory that there might be a conspiracy, one must immediately reject this idea and instead search heaven and earth for some way, any way, to explain the evidence presented in another form, any other form, that refutes the theory of a conspiracy.

Watch out that you don't re-injure your hernia while performing those back flips.

BrianOFlanagan's picture

The above article was so weak, no flips were needed to refute it.

Cognitive Dissonance's picture

Thus your hernia is safe and sound and your guts remain inside your body. I count that as a good thing.

akak's picture

What is that vile and rotten stench that I suddenly smell?

Ah yes ---- the unique and pungent aroma of troll.  Quite unmistakeable, actually, once encountered on repeated occasions.  It is, in fact, the anti-aroma of gold.

jakoye's picture

Again, what is this reflex of yours to call a "troll" anyone who disagrees with you?

Some people agree with your opinions, akak. Some disagree. GET OVER IT!

Cognitive Dissonance's picture

Said the two week old troll to the ZH community.

jakoye's picture

Right, cognitive, because you are just soooo much wiser than anyone else on here, right? Cause you're the oldest and most learned man in the world. You're the super-guru at the top of the tallest mountain! Tell me, is it a burden to know it all? Must be taxing.

And when I've been here for a year, shoveling the shit you spew right back at you, you can lord it over me that you have 2 years of ZH membership to my one.

 

akak's picture

Your attempt to assume a new identity here does not fool anybody, Johnny ol' boy.  Your mind is still full of mush, as you demonstrate over and over, no matter what identity you chose to use on that particular day, by your repeated strawman argument of positing that the calling out of demonstrable trolls is merely due to their "disagreement" with those calling them out.  In reality, asshole, you will note that many people disagree with me here, and I with them, yet in the vast majority of such cases, the word "troll" is never used. 

Your innumerable logical fallacies continue to undermine your pathetically weak arguments, as well as clearly suggest just who you really are underneath whatever latest alias you are posting.

impending doom's picture

Can we just quash the name-calling. The thing I like most about ZH is that silly ideas are quickly pummeled with evidence to the contrary. Fuck group-think. Of course there are paid shills here encouraging infighting and the eternal waste of time re-explaining the logic of the position most of us hold or at least contemplate holding. Despite all that, there are real new red pill-swallowers joining daily who need to hear more than just: asshole, troll, etc. Whatever. What do I know?

jakoye's picture

ZH strawman mascot FTW!

I think akak has that word pre-programmed on his keyboard. Press [F1] for "strawman", press [F2] for "troll", etc., etc.

whacked's picture

touche`Brian

 

dare not say anything against the gold nuts though.. appreciate your comments

thesapein's picture

But only after taking the blue pill, right.

You can tell the difference because the red pill makes you sick at first, vomiting is normal.

If you don't feel any different afterward, then the experience did nothing; no changes were made.

You sound like somebody who is terrified of being wrong. To help with this fear, you must seek it out. You must fall, and if you survive the fall... a little graduation for your little mind.

ZEITGEIST's picture

is this idiot OFLANAFUCK taking the place of Johhny Bravo today...what misguided idiots are amongst us...

Cognitive Dissonance's picture

Some misguided idiots and some psyops. Mix thoroughly and dispense daily.

ZH is a powerful weapon against the powers that be and thus it must be undermined at every turn.

Frank Owen's picture

"Teresa Giudice Blames Bravo for Financial Woes" surely no relation but amusing.

http://www.popeater.com/2010/08/19/teresa-giudice-blames-bravo/

merehuman's picture

call it any name you like. Good to have the Real thing versus the promise.

You make a blanket pronouncement like YOU know something. Kinda like J.Bravo, nadler and the like. Kinda like the fish in the gulf is good to eat, theres no oil(all gone) and BP and the government is our best friend.

Thanks a bunch for looking out for us. Adrian Douglas did the work. You just make noise.  Phfffttt

DarkMath's picture

BrianOFlanagan why do you say this proves nothing? Prove that to me. Please prove why the PM price is more the True market price. Adrian Douglas went to great lengths to proove the PM price is manipulated downward. I don't think it could get any clearer. But maybe he's wrong. What's your evidence beyond the fact you said so?

Turd Ferguson's picture

TD: You may want to post this link, too. Egon von Greyerz from this morning.

For those of you who questioned Egon and his firm two days ago, here he is:

http://www.cnbc.com/id/15840232?video=1569699046&play=1

and here's the earlier thread:

http://www.zerohedge.com/article/matterhorn-asset-management-there-will-...