10 Years Gold Price Manipulation

August 5, 1993: 'In a matter of seconds' the gold price dropped by $ 10 when COMEX trading opened in New York - a 'technical blitz of selling' had taken place. Observers talked about a 'bloodbath', they were 'speechless' and puzzled by the reasons - that's how newspapers described the first action of the financial institutions against a strong gold price [1].

Since then, gold price manipulation has been characterized by a pattern of sharp drops in prices during the New York trading session. It nips any emerging optimism in the bud. Furthermore, the gold price suppression is organized in the US. The following intraday-seasonal chart clarifies this pattern. It depicts the average intraday course of the gold price over the last 5 years.

Figure 1

The price suppression during the New York trading hours is clearly visible. This intraday pattern, falling prices during the COMEX trading session, provided an opportunity for statistical evidence [2]. In addition, this pattern makes it possible to determine the start of the gold price manipulation. For that purpose the price movements during an American trading session are compared with the price movements of the remaining day ('overseas'). Its mathematical approach is NYClose - AMFix - (AMFix - NYPreviousClose) [3]. The top line in the following figure presents it in a smoothed-out way (125 days). It is below zero, when the price movements in New York are weaker than overseas. This line is a measure of the suppression: The deeper it is, the stronger are the interventions against a rising gold price. The line at the bottom is the gold price.

Figure 2

The figure shows clearly that the price of gold is falling during trading sessions in New York since August 5, 1993 (the start of the manipulation), whereas it is rising during the remainder of the day. This was even more pronounced in September 1999 when a dramatic rise in gold prices after the Washington Agreement (WAG) called for intensive efforts to suppress the price. Stronger interventions have caused also the declines of the gold price in 2000 and recently in 2003.

What is the background? In 1993, the prior rise of the gold price led the responsible heads in the FED and in the US-government suppress the price. Thus, losses of private banks were reduced, which had taken net short positions through gold lending. In addition, the intention was to weaken gold as a competitor of the dollar, bonds and fiat money in general. At the same time Treasury undersecretary Larry Summers started to talk about the Strong Dollar Policy [4]. Before that, he had examined the inverse relation between gold and interest rates in a paper [5]. Another indicator: One month before the start of the gold price suppression FED governor Wayne Angell talked about the relationship between gold price and the dollar, interest rates, and inflation expectations. He said, it would be 'very easy' to 'hold the price of gold' [6].

Was it really that easy? At least it was possible for 10 years since there was enough gold in stock worldwide (as already Angell had noticed). But gradually there seem to appear fatigue syndromes. The rising gold price as well as the changes in the intraday pattern point to this. The next figure shows the intraday course since the last published article [7].

Figure 3

The intraday pattern has changed. The strategy of intervention has been modified, it has become more flexible. Now the price is being suppressed at all psychologically important times: at the London fixings, at the opening and at the closing in New York. Thus there was more suppression activity than figure 2 depicts for the past 14 months. Nevertheless, the result of the interventions is lower than in the previous years. On its 10th birthday, the gold price manipulation is in a process of decomposition.

Dimitri Speck

[email protected]

August 5, 2003

(c) 2003 Dimitri Speck

www.seasonal-charts.com

References:

[1] Wall Street Journal Europe August 6, 1993 p. 9

Sueddeutsche Zeitung August 6, 1993 p. 27

Sueddeutsche Zeitung August 7/8, 1993 p. 25

[2] Clawar, Harry (2000): "A New Gold War?"

www.gold-eagle.com/editorials_00/clawar031300.html

[3] Speck, Dimitri (2001): "Tracks in the Trading: When Did the Gold Price Manipulation Begin?" www.gold-eagle.com/editorials_01/speck022301.html

[4] DeLong, Bradford and Eichengreen, Bradford (2001): "Between Meltdown and Moral Hazard: The International Monetary and Financial Policies of the Clinton Administration"http://emlab.berkeley.edu/users/eichengr/research/clintonfinancialpolicies9.pdf

[5] Howe, Reginald (2001): "Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices" www.gata.org/gibson_s_paradox.html

[6] Speck, Dimitri (2003): "FED-Musings on the Eve of the Gold Suppression" www.gold-eagle.com/editorials_03/speck020303.html

[7] Speck, Dimitri (2002): "Gold Manipulation Intraday Charts" www.gold-eagle.com/editorials_02/speck062802.html