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Guest Post: More Forensic Evidence Of Gold & Silver Price Manipulation
Submitted by Adrian Douglas of Market Force Analysis
More Forensic Evidence of Gold & Silver Price Manipulation
In two recent articles "The Gold Market is not "Fixed", it's Rigged" and “The Failure of the Second London Gold Pool” I showed how the gold trading between the London AM Fix and the PM Fix was unnaturally related in an inverse way to the trading between the PM Fix and the following AM Fix. I calculated that the probability of such a counter-intuitive correlation existing by happenstance was one in 2.6 times ten raised to the power 31. This is almost irrefutable evidence that some one is continually and deliberately dumping gold into the PM Fix to suppress the price of gold.
In this article I have unearthed even more forensic evidence in the form of a correlation between the gold and the silver price which again could not happen by random chance. It is necessarily a result of deliberate market intervention and what’s more it occurs on a continuous basis.
The fundamentals that drive the supply and demand of any commodity are so different from one commodity to a next that we would not expect there to be any mathematical relationship between their prices. For example let’s consider gold and copper.
Figure 1 Cross-plot of Copper versus Gold 2001-2010
They are both metals but that is where the similarity ends. Copper is used in many industrial applications for its superb electrical conductivity properties but also it is used for water piping because it is non-toxic, durable and corrosion resistant. Gold on the other hand has almost no industrial uses and is used for storing wealth as an investment and in jewelry fabrication. One would expect that there would be no long term correlation between the price of copper and the price of gold.
Figure 1 shows a cross-plot of gold and copper prices from 2001 to 2010. It can be seen that there is no discernible mathematical relationship between the prices of these two metals. The cross-plot of prices looks like someone randomly fired a machine gun at the chart.
Gold and silver are also two metals that have very different supply and demand fundamentals. Only about 10% of mine supply of silver is used for investment purposes while 90% is used in industrial processes from photography, electrical soldering and wiring to batteries and medical applications. One would expect that like copper there would be no particular relationship between gold and silver.
Figure 2 Cross-plot of Silver versus Gold 2003-2008
Figure 2 shows a cross-plot of silver versus gold from June 2003 to September 2008. This chart is absolutely shocking. It shows that gold and silver prices are almost perfectly correlated with an R squared value of 0.96 (1.0 is a perfect correlation). The best fit line to the data gives the relationship that
POS= 2.23*POG – 253…….…eq(1)
This means that silver prices in this five year period did not move with respect to the very different fundamentals of silver; they were entirely determined by the price of gold! If I had been on a desert island between 2003 and 2008 you could have called me on the phone and told me the price of gold and I could have told you what the price of silver would have been on that day. Let’s demonstrate it.
Let’s take today (September 21) back in 2006. The price of gold was $582.2. From the equation the silver price should be 1045 cents/oz. It was actually 1083 cents/oz so the synthetic price calculation based only on the gold price agrees within 3.5%.
Figure 3 Cross-plot of Silver versus Gold 2008-2010
Figure 3 shows a similar cross-plot but this time the data is from September 2008 to September 2010. It can be seen that yet again there is almost a perfect correlation between the price of gold and the price of silver. In this case the relationship is given by
POS= 1.92*POG – 431…………..eq (2)
Figure 4 shows the data set from June 2003 to September 2010 on the same chart. The two distinct correlations are shown with the black and green lines.
Figure 4 Cross-plot of Silver versus Gold 2003-2010
I have already demonstrated in previous articles that the price of gold is suppressed. What this chart demonstrates is that not only is the price of silver manipulated and suppressed but it is done so almost perfectly algorithmically. What can also be deduced is that the price of silver was creating a problem to the manipulators in 2008 so they hammered it down and subsequently instigated a much more aggressive suppression on the price of silver. This can be seen from the fact that since 2008 the correlating line (green line) is below the pre-2008 relationship (black line) and also sports a lower slope. Had the same pre-2008 algorithm been maintained until today the low for silver in 2008 would have been $14/oz and the price today (9/21/2010) with gold at $1288/oz would be $26.19/oz when it is only $20.90/oz.
In figure 5 the two equations eq(1) and eq(2) have been used to generate a synthetic price of silver from June 2003 to September 2010. This is the red curve on the chart. This curve is only derived from the price of gold and the correlation equation. There is no input of the price of silver. The real price of silver is charted for comparison and is shown in blue. What is really astounding is that one can generate almost a perfect reproduction of the price of silver by only knowing the price of gold. This is again “smoking gun” forensic evidence that the price of silver is not only manipulated but is done so algorithmically.
Such a perfect relationship with gold could not happen over a seven year period by pure happenstance. The silver price is completely false and has absolutely nothing to do with the fundamentals of silver.
Figure 5 Real & Synthetic Price of Silver 2003-2010
In figure 6 the price of gold and the correlation equations have been used to generate a synthetic gold to silver ratio from June 2003 to September 2010 which is shown in red. The actual gold/silver ratio is also shown. It can be seen that the two data sets match very well. This shows that the ratio only depends on the gold price because this is the only information that was used to generate the red curve.
Figure 6 Real & Synthetic Gold/Silver Ratio 2003-2010
This is simply an outrage. The bad news is that for the last seven years those who have been expecting silver to outperform gold or to march to its own drum have been sorely disappointed and it was hard wired into the trading that they were not going to see a freely traded silver market. The good news is that from the way silver has traded in recent days it is decoupling from gold. It is breaking the algorithmic shackles placed on it by the manipulators. There is not enough data to see this definitively in the cross-plots yet but it should be evident very soon. The artificially low price that has resulted from the creation of false supply through the sale of paper silver via unallocated accounts as a substitute for real bullion has led to a growing shortage. This monumental scam is in the process of becoming unraveled as investors insist on taking delivery of real silver.
Forward sales of silver through the LBMA OTC London market are approximately 8.5 Billion ozs. This is almost all the entire global reserves of silver that are yet to be mined! But the silver miners who own the remaining reserves are unhedged, so who ever has sold 8.5 billion ozs of silver forward by inference does not own 8.5 billion ozs of silver. It is a naked short position of 11 years of global production.
The interesting question is what will the free market price of silver be? Gold itself is suppressed by many multiples of the current price and the false silver price is just a derivative of a false gold price. I have previously estimated that there is only one ounce of gold for every 45 ozs that have been sold. If a similar relationship exists in silver than the eventual long term free market price target could be more than $900/oz. This is just a wild estimate but I think it is safe to say it will be many multiples of the current outrageously suppressed price of $20.9/oz.
Adrian Douglas
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whoa, doggy
Kathy, ya copped out. The man put out product for you, big time. That all ya got for him? I bet it isn't...
well,
Kathy, I gave you Northern Tiger Resources (NTGSF) 3 weeks ago after you whined about finding a way to LOSE money on Almaden Minerals (AAU), a stock that has risen from .90 to 2.70 in 2 months. I reminded you that succeeding in the junior resource sector requires great information and well-timed bets.
At the time I reco'd it, NTGSF was .28. Today it is .645. Hopefully you stopped whining and pulled the trigger, b/c that's a gain of 122%. And Northern Tiger is only just warming up.
So when you say ZH has gone to the dogs, I say:
WOOF WOOF ARF ARF OWWWWOOOOO!
Wow, I quit watching Almaden a while ago, and didn't realize I was back in the black with it.
i got all you alpha dogs' attention. satisfaction. i just am bored with the same old same old, around here. no one left to raise a little cane. no dirty talk or references to hookers and whores. no girlie pin up pictures. guess you gone totally academic. too bad it use to be really a lot of fun for me everyday on ZH. no one left except for tyler, and he is just down right serious.
NO arrested development, ain't buying junior miners. burn once, fool me twice?
So, that would indicate that you are leaving ZH? Is there anything we can do to expedite that?
http://lmaodogs.com/explode-your-head-with-my-mind-d/184/
i can see by your picture it is a true love indeed.
Thank you! My Dear Mother's side of the gene pool contributed my stunning good looks.
An absolutely brilliant piece of analysis.
sorry to ask ... what is a good site to follow gold movement
on line? kitco sucks.
I use this (but it is kitco):
http://www.24kt.us/pm
thank you.
An honest voice in a sea of vipers.
I realize these points I am bringing up do not necessarily refute the argument that something smells to high heaven about what is happening with Gold and Silver, but I'd sure appreciate someone helping me to understand where I am wrong on these points. Sloppy interpretation of the numbers makes me leery of the larger interpretation. Makes me feel like this is hype/spin rather than an objective take on the numbers. This is important to me. I may be getting ready to make what for me is a big move based on what I have been reading this past week. Any help would be appreciated.
Wow, day late and a dollar short....
Tulving showing more and more SOLD OUT every day now. Get it?
http://www.tulving.com/goldbull.html
Pulled the trigger. I had some before, I increased my position about 30%, a big assed scary move for me.
I agree on this. I'm not disputing the conclusion but the analysis essentially has a conclusion that they are trying hard to support, kind of like bad academic research where studies are designed and interpreted to support a pet theory of the author and no other conclusion is explored. Caveat, I haven't read the rest of his previous work so this all may be an erroneous conclusion on my part. Anyway, plenty of algo traders (or just normal people) in the market that would examine relationships between precious metals (esp silver/gold) and then trade mean reversion. The fact that silver is dislocated from its fundamentals would only impress me if it was deeply dislocated to the downside, meaning substantial economic loss for all silver transacted being subsidized by a manipulator. Maintaining a premium in some kind of ratio relationship to gold doesn't shock me at all. They are substitute products to some degree hence "poor man's gold". Maybe I just didn't read carefully enough but assuming anything in these markets trades on fundamentals and then assuming manipulation if it does not - well, in these times it's bad but historically there's tons of examples of the same too. Silver with an emotional element and proxy/money status would be highly likely to exhibit a dislocation from fundamentals, gold of course is the poster child for premium to industrial use so not a shocker that it's similar.
Hahahaha, Jon Nadler, is that you?
Nope. Just someone who's read a whole lot of academic research and is familiar with the influence of bias. Like I said. I'm not saying it isn't happening but I can think of many logical reasons for this relationship. I know plenty of people who look at this ratio just like oil/nat gas and plenty of others.
Take it from a bear who believes wholeheartedly in manipulation going on - this doesn't convince me. Obvious author bias and pretty easy logic makes me dubious. This also comes from someone who likes physical silver. You have every right to disagree but there is no agenda and this is a basic observation (admitedly I didn't read the early articles so maybe there's a lot more).
Thanks for your answers, I needed validation in that moment. I pulled the trigger on what for me is a really big purchase any way. This thing may wildly careen all over the place but I can count on it that things are NOT going to get better for a really long time. In the big picture, my move is the right decision. Meanwhile, the peace of mind will allow me to go on about my other business. I have done what I can do. Thanks again.
Go ahead manipulators, keep the price of silver and gold artificially low! Sooner or later, the FRN will crash and your control will do a controlled descent into terrain. Time is on the side of physical owners.
We the sheeple tend to look upon silver as currency and gold as a compact store of wealth. If one manages to save enough silver one may be inclined to purchase some gold to store.
If the price of the gold exceeds what the buyer will pay....
I think people have an intrinsic attraction for gold and silver and innate ability to establish comparative value. "A deal, deal! Maybe the guy's a Republican"
A correlation in price does not suprise me one bit.
"Who is Crapgame?"
Characters in Kelly's Heroes for $400.
Thanks for your answer.
As someone recently pointed out, if the general public knew that gold can be bought in smaller amounts than 1 TOz, the mints could not keep up with the demand.
MsCreant
Mr.Douglas is not misinterpreting correlation as causation: he is pointing out how different the core fundamentals of each metals' market are, and how unlikely any correlation should be because of that. The fact that one does exist is indicative of manipulation.
As for #2 . Example?
And #3 well: "You say potato, I say..."
Regards
You are right, see Obewon below too. Thanks for your answer.
You have a valid point; but as a mathematician, I don't see "sloppy interpretation" here.
The point is this: western governments & central banks (principally the Anglo-American cartel) have been deluding the world over the past 80 years; they've been trying to convince investors that silver is an industrial metal (which is principally is!), but that it has no real worth as an investment, per se . . . and they've been wildly successful in achieving their objective, until this decade.
Yes, correlation is not causation; and sure, there may be (and likely is) a spurious relationship "not being taken into consideration" . . . but that is not the relevant point here (by design, in statistics, the use of R^2 "discards" other spurious relationships, though there are other statistical methods to use when one wants to consider spurious relationships). Simply stated, Adrian has shown that by using the R^2, silver is currency, just as gold is currency; directionality is not relevant in this particular experiment.
If these PMs were not "true currency", they why have the Anglo-American cartel & their central banks gone to so much trouble over so many years to suppress the prices? It is because they know the truth, and because they must withhold that truth from the masses, in order to preserve their own debt-based, fiat currencies and financial systems.
Getting Practical: Several weeks ago, I was about to buy more physical gold and silver; I hesitated because there were strong indicators that the current PM price movement would continue. I expect that I'll have another opportunity to buy, once the central banks and their agents (JPM, GS, et al) see an "entry point" to smash the PM prices back down. So I'll be patient, because I'm certain that the PM prices will shrug off the suppression, and continue their upward journey.
This was helpful. I pulled the trigger in spite of practicality. Helped me not worry and I have made enough numerical gain with my other PMs that things have to fall pretty damn far before I am a loser on the whole amount I have in them. Thanks.
Rest easy on your pillow, MC. Divide 8.5 billion into supply. 14 years of annual supply promised to be delivered and they are yet to buy it! Sweet dreams.
Excellent analysis, Adrian!
This should be "required reading" for the precious metals skeptics.
How high does gold have to go before I break even on PHYS?
You know, I'm wondering the same thing myself. CEF doing nicely. PHYS...is flat. Why is that?
Sheesh, the price of gold and silver are up so the only nit to pick that the bashers could find was Eric Sprott and his fizz.
If you really do own PHYS: just how long is your attention span, anyway? Don't tell me it's phys'ling out already.
Regards
So gold, a metal that is not consumed, just transformed and accumulated, has a price pattern in recent years that is strongly correlated in price to silver, a metal that does get consumed, as well as accumulated. Verrrrrry Interestink!
Anyone one know the PM fixing time EST? thanks
The proof of manipulation is that the price of one precious metal correlates with another precious metal!?
No. The evidence of manipulation comes from a correlation that shouldn't exist between two metals with fundamentally different markets.
Mr.Douglas' point was that in an honest market silver's chart should lie somewhere between Gold and Copper, rather than exist as a cc of Gold (or Au's chart exist as a cc of Ag...you get the idea).
Regards
This is one data point that points in that direction. There are MANY such data points out there, many of them uncovered by Adrian himself.
You are failing to see the forest because there is a tree in the way.
its likely due to dollar correlation and the silver market being manipulated by the large physical shorts. Only problem for them is they can't do it forever.
OT:
So let's see... We have a technical risk factor basis the S&P of a potential key reversal followed by an island reversal.... There's a high probability of back to back snake eyes.... Kinda risky wouldn't you say...?
Ciao,
Econolicious
Economic shortages are related to price—when the price of an item is "too low," there will be a shortage. In most cases, a shortage will compel firms to increase the price of a product until it reaches market equilibrium. Sometimes, however, external forces cause more permanent shortages—in other words, there is something preventing prices from rising or otherwise keeping supply and demand unbalanced.
http://en.wikipedia.org/wiki/Economic_shortage
isn't it obvious that government policies are "conspiring" to drive UP the price of Gold? I mean the PRICE hasn't done anything but go up for 10 FRIGGIN YEARS. And--what's that sound I hear? RESIGNATIONS? I had a labor lawyer defend me who once who ran for Congress no less and he told me in all seriousness "the postal service is reading my mail." I told him "dude, even the aggressive postal types are too stupid and lazy to read your frikkin' mail." that's the way i look at all this "manipulation" hooey. they're watching porno, right?!!! "gold manipulation"? hahahahahahahaha.
No, it's not obvious.
And they read your email, along with everyone else, using very high speed algos and a direct tap into the fiber optic feed at multiple locations throughout this country and all international portals. The Telco's have been playing ball since before WW2.
And let's not forget foreign locations of fiber taps as well. Remember the Patriot Act? It started long before that little piece of treason was passed.
Reading postal mail is so yesterday.
Bang on CD. For those who remember, the global "Echelon" surveillance network was in place long before the so-called GWOT.
Hell, those sneaky Brits have been reading telegraph, telex and other key traffic flows for as long as sub-sea cable systems have existed. London became the nexus of sensitive east/west communications of every kind. Information is power.
SIGINT capabilites today mean that literally everything is sucked up, scanned by massive arrays of NSA/NRO super computers for key words, and anything vaguely questionable is routed to analysts for deeper review.
Your government, and tax dollars, at work.
you're right, it's mostly about fiber, satellites, and the Patriot Act. Stuff that has not changed with the political guard. Now I'm confused again, which side is fighting for democracy?
"Annakin, my allegiance is to the Republic, to Democracy!" -- Obi won Kenobi
I'll take the Republic, you can keep democracy.
"gold manipulation"? hahahahahahahaha.
Is that your best shot? Too lame to respond to.
Was talking with a rep at Everbank yesterday - they will purchase gold on your behalf at a .75% fee - 5k min for unallocated, 7.5k for allocated. Without getting into the issues of allocated or unallocated gold - I inquired as to how my order would be executed. If I put money in today, I will be filled at the AM London fix tomorrow - sweet - .75% fee me ass.
(they do not offer a fill at the PM fix)
Ray, I respectfully suggest you stay far away from any unallocated PM investment vehicle.
I often think of an "unallocated PM investment vehicle" as similar to trading (investment) deck chairs on the Titanic. One can most certainly make a killing (no pun intended) just as long as you get out in time. You simply don't wish to be the last person holding said deck chair.
Unless, of course, you wish to use it as a flotation device. Then it's worth it's weight in ....um....Gold. :>)
This is interesting but does not prove manipulation. Silver may get more buyers and sellers who see it as a junior hard currency than it does buyers and sellers that use it in their business. That's not necessarily a secret cabal.
There's no new information in the syntheric POS. You're plotting the synthetic POS on the same interval as the data you used to create the fit. It would show something new, beyond the cross-plot, if projected outside the fit interval and still showed predictive value, either going forward or historically.
So, all those traders changed their mind in 2008 (when the correlation suddenly reset to a new value)? At the same time?
As I said above, if this was a smooth line that never changed, I could agree, but a single, sudden change seems a lot more like a policy decision than market action.
Go Almaden, the only stock preventing my net worth being negative.
http://goldengrowth.blogspot.com/2010/11/almaden-minerals-ltd.html
http://www.travelsradiate.com/north-america/mexico