The Curious Case of the PM Fix vs. the AM Fix
James McShirley
My investigation into gold trading irregularities, including the time around the London fixes, initially began after reading the work of the late Adrian Douglas, along with Dmitri Speck. As a 30-year veteran of the futures market (lumber being home turf) inconsistencies and anomalies were easy to spot. While eventually trading the gold market I discovered a veritable laundry list of suspicious trading activity. One with exceedingly high odds - 80% in fact - was the London PM fix settling lower than the AM fix. That led me to other New York/London-centric trading anomalies. The odds of the PM fix being lower 80% of the time was consistent with the pervasive overall down trend during London/New York trading periods. From January 1st of 2006 to August 2011 gold gained $1,397.15, or 368%, having traveled from $520.75 to its all-time high of $1917.90. Judging by the PM fix, however, you would swear gold was in a great bear market.
The curious thing about the specific anomaly of the lower PM fix vs.the AM fix though is how after occurring for over a decade it began to slowly abate in the year leading up to the CFTC investigation announced on March 13th, 2013. It then reversed, and the PM fix began gaining on the AM fix after the investigation. The trend further accelerated upward after the U.K.-FCA investigation was announced on November 26th of last year. After a decade or more this trading "anomaly" basically evaporated into thin air! Why the sudden change? If the London fixes were just part of normal "price discovery" and not somehow irregular then why does it appear that March 13th and November 26th 2013 were somehow seminal events? Back on April 5th, 2013 I noted on the LeMetropole site:
"One rule that is on hiatus lately is the cumulative gain/loss of the PM fix vs. the AM fix. While one month isn't a trend it is curious that since March 1st the cumulative PM fixes are $57.00 HIGHER than the cumulative AM fixes."
Talk about a sudden reversal! Later, on July 2nd I further noted:
"One recent change of pace in the cartel game plan has been the timing of the bigger hits on gold. While the PM fixes in June were generally still under pressure the vast amount of the cumulative losses occurred after the PM fix, and before the AM fix. In fact for the entire month of June gold lost $210.50 from the first PM fix of the month to the last, yet only $11.50 of that occurred in the typical post-AM fix time frame."
The trend of the stronger PM fix vs. the AM fix continues unabated to the present, and as mentioned has accelerated from late November. Exactly one year has gone by since the CFTC London fix investigation was announced and the fixes have strangely reversed polarity from their decade-long trend. Coincidence? More recently on February 20th I further noted:
"The lower PM fix cartel rule that dominated trading for so many years continues to act contrary. Much like the Friday smash rule something has been different for some time. Even though the month of January was sharply sideways price wise (+$14) the PM fix was showing underlying strength. In fact 18 out of the 22 trading days were higher, or no lower than $5. Of those 4 days that were lower than $5 all but one occurred during the crucial op.ex./FND period at the end of the month. The actual up/down tally was 14 up, 7 down, and 1 unch.
For the year so far 33 out of 37 PM fixes have been higher, or no lower than $5. The greatest February PM fix loss so far is a rather miniscule 2.75. Ten PM fixes have exceeded $5 gains, while only four have exceeded $5 losses. The cumulative PM fix gains stand at $138.50, while the cumulative losses are only $58.00, a net gain of $80.50. The old cartel ways would always have the PM fix lower even when gold was in rally mode. The fact that it hasn't been lower, even during periods when gold has been selling off is worth noting."
Worth noting indeed! Wednesday's +$10.25 PM fix vs. the AM fix made it a cumulative +$103.25 for the year, with 45 out of the past 49 PM fixes higher, or no lower than $5. Other cartel rules remain AWOL as well, with the crucial selloff periods, and algo bombs in general still curiously absent. The old saw about there being few coincidences in the markets rings true. Can it be coincedental that the PM fixes have behaved much differently in the year after the investigations compared to the years prior?
Normal price discovery or rats scurrying from bright lights? Gold declinedin the 12 months post-CFTC investigation by nearly twice as much as in
the prior year, yet the PM fix gained $266.25 vs. a prior loss of $39.25! This is a stunning reversal!
The argument the gold isn't manipulated because if it were traders would step in and arbitrage the London fixes is easily refuted. In a nut, they do. Deep pockets and MOPE however are all that matter. In the case of TBTF banks there can be no deeper pockets. In a QE-mad environment where trillions are spent supporting TBTF banks any potential gold trading losses would be miniscule compared to the collapse of a $600 trillion + global paper derivative scheme and the commensurate change in "inflation expectations". Confidence is everything, and in reality it would be implausible for the London fix and other gold barometers to NOT be manipulated. Actually manipulators with deep pockets are almost assuredly making money on gold trading. They can always withstand being offside long enough in any given trade to eventually flush weaker spec longs. The fact that commercials (read TBTF banks) have been perennially the major short in both gold and silver for decades is in of itself manipulative evidence and without merit in a freely traded market. The fact that all 9 of the trading anomalies I follow involve gold price suppression, rather than gold price promotion is telling.
Any discussion of the London Gold fix manipulation must be taken in the context of a much broader gold manipulation agenda. Treating the London fix as a potential one-off problem without considering the enormous body of gold manipulation evidence available, particularly at http://www.gata.org/ [9] is disingenuous. Of those 9 aforementioned trading anomalies I have researched (the London fix anomaly being just one of those) none could occur in a freely traded market. The most suspicious of all isn't even the London Fix, but rather the "1% and 2% rule". As I have documented for over 10 years nearly all gold rallies are capped at +1% basis the Comex pit close, which is the most widely reported price. A few, which I dub "expanded limit" are capped at exactly +2%. So outrageous is this behavior that I have predicted hundreds of daily gold rallies virtually to the exact tick. I have even predicted in advance on more than one occasion a sequence of 4 consecutive trading days within pennies of each day's close. To do this once as you know would be extraordinary, to do it over and over is akin to winning a Powerball lottery over, and over. Had somebody won a Powerball numerous times you would immediately suspect the game was rigged. The same holds true for gold trading on a daily basis. With HFT algos it has become child's play to intervene with surgical precision.
Had I won a Powerball multiple times I would expect to be investigated for fraud. Such odds in irregular gold trading activity have been ignored for too long, and any investigation is most welcome. Pollyanna beliefs about gold manipulation are terribly misguided. In light of ZIRP, LIBOR, and virtually every new day bringing another trading scandal is it realistic to claim gold is the only market NOT manipulated? My research has involved thousands of hours, and as you might guess it's a tedious venture. It is data and fact-based, not just opinion or "conspiracy theory". Anybody disputing manipulation should first review all data, including the works of Adrian Douglas, Dmitri Speck, and the GATA archives. Or, if you're up for it, spend thousands of hours of your life researching and DYODD.
James McShirley
March 14th, 2014