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
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”
Table 1: Sample of Gold
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).
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.
Figure 3: Same Chart as Figure 2 with Right-hand
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.
Figure 4: Cross-plot of
Cumulative Intraday Gold Price Change & Cumulative Overnight Gold Price
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 R2 is 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.
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.
Figure 5: AM & PM Fix
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.
Figure 6: Intraday Percentage Price Change
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
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) It is important to suppress the price so
that investors who insist on having physical bullion are dissuaded 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
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
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.
Adrian Douglas is proprietor of the Market Force
Analysis newsletter (www.marketforceanalysis.com) and a member of GATA's Board of