The Chart du Jour

Suspicious Footfalls in Gold

March 30, 2000

By, Barclay T. Leib

The Palladium market just witnessed a parabolic advance from below $400 an ounce to above $800 in the two month period between December 1999 and February 2000 (stumbling only after draconian rule changes by the Tokyo Commodity Exchange into the March expiration cycle). During that time, gold futures languished at around $283 - barely being able to launch a rally for more than two consecutive days.

Gold did of course experience a dramatic advance from $255 to above $330 last September, catching many a speculator (let that read CTA John Henry) and over-hedged mining house (let that read Ashanti and Cambior) completely off-guard. But there has been little follow-through since.

Rumors continue to swirl that there are huge short forward and short call option positions that have yet to be covered, and rumors also circulate that there is a large undisclosed official seller of gold preventing any further advance. Neither assertion can of course be proved.

What has come to light in recent months though, is that there is a distinct bias in the way gold has been trading. Specifically, it would appear that gold has generally traded consistently lower during the North American trading day, before picking up a better bid in the Far East and the European morning.

In a study first released on website in mid-March, Harry J. Clawar, an independent Ph.D analyst of market behavior , shows that between January 25,2000 to March 17, 2000 gold traded quite regularly higher from the New York close into the London A.M. fixing (75% of the time), and then consistently lower from that time back into the New York close (70% of the time).

In order to determine if this was a statistical fluke or something more significant, he then applied what is known as a one-tailed test -- a binomial test, with a correction for continuity, to the frequency of the direction of differences. "The results indicate that the probability that the London AM fix exceeds the Previous NY close with this frequency, by chance, is less than 1 in 100," and the chance that the decline between the London A.M. fix and the New York close is a random occurrence is less than "5 times in 100."


Over the period studied, Clawar showed that the gain per ounce in London over the New York close aggregated to a positive $43.75, while the London A.M. fix to the NY close aggregated to a loss of $45.85 - ergo a generally unchanged market overall, but with a definite pattern in the market's rhythm.

"There is either a consistent and large seller in the New York time zone," states Clawar, "or there is consistent and strong accumulation of gold abroad, or most probably a bit of both. I do not know whether this represents a potential manipulation from some unnamed official source as precious metals analyst Frank Venerosa currently suggests, or simply the global market slowly accumulating gold as a replacement asset for the U.S. dollar. Either way, there is clearly something afoot here."

Given what the metals markets just witnessed in Palladium, perhaps short call sellers on gold bullion should take note. We would certainly expect the current push-pull between New York and the foreign markets to resolve itself in some fashion by May. We also note on the chart below an Elliott wave pattern that appears relatively complete to the downside together with a compellingly tight Fibonacci rhythm to the recent slide. We're buyers here with a tight stop a few bucks down.

Chart produced using Advanced GET End-of-Day

Dr. Clawar may be reached at

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