Thursday, September 29th, 2016 MST

There is no free market in gold

Anyone who has been paying attention to the precious metals world over the last couple of years is well aware of the circumstantial evidence of price manipulation. None of which is particularly surprising, as all the way up through the gold pool of the late 1960s, it has been the open policy of the US and UK governments to control the dollar price of gold.

At the beginning of this year, Nick Laird of Sharelynx published the most statistically significant evidence of this price manipulation that I have seen. I was surprised at the time, that it didn’t get more widespread coverage. With recent events in mind, I thought it was a good time to review his findings in case anyone missed them previously.

Mr. Laird took thirteen years of LBMA gold price data, directly off of their website, and constructed a plot that clearly shows a massive bias in returns. For each year he created two bars. The first bar is the annual gain or loss that you would have experienced if you had bought gold at the London PM fix and then sold it at the London AM fix every day. The second bar is the annual gain or loss you would have experienced  if you had purchased gold at the London AM fix and sold it at the London PM fix.

The results are amazing. For every single year of the entire gold bull market, the annual return from the AM fix to the PM fix was a loss. Statistically speaking, there is no way that this is possible in a free market environment.

LBMA Bias in Percent

The next plot shows the gold price since 1970 (red) and what it would have been if it had not traded at all between the AM and PM fix (blue). The difference is remarkable. Yes, that’s $13,000/oz gold. It also clearly demonstrates that this particular mechanism of gold price manipulation began in earnest in 1999.

1970 ex-London Gold Price

And finally, here’s fours years worth of the daily gold price averaged into a single graph. In a free market this plot should resemble a straight line, as you would not expect any particular time of the day to perform better or worse, consistently, for four years.  But as you can see. it is anything but a straight line and anything but a free market.

Intraday Average Gold Price Movements

The LBMA has absolutely nothing to do with price discovery and everything to do with price setting.

8 Responses to “There is no free market in gold”

  1. RK in TX

    Paul, your intraday average price graph apparently varies from only about 817.15 to just under 817.75, for a total span of less than 0.6, based on the right hand axis. As a ratio, that is 0.6/817.45 = 0.000734, which is well under one part per thousand! How is it that a daily price fluctuation, that is: (a) not even monotonic (I note the ragged wiggly shape), and (b) well under 1 part per 1000, indicative of price manipulations? You say that if there was no manipulation, then the curve should be a straight line. Well, it literally is a straight line, at least to within better than 1 part per 1000, right? But if you insist that this is not straight enough, then how straight would it need to be for you to conclude that there is no evidence of manipulation? Please explain. Thanks!

    • Paul Carter

      That’s a great question. Particularly in light of the fact that playing with the range on an axis is one of those tricks used so frequently to distort statistics.

      In this case it’s a signal to noise problem. The magnitude of the number doesn’t make any difference. We’re only interested in the size and behavior of the changes. The real question is, does this graph contain actual tradable information (a signal), or, as you ask, is the entire range of prices observed just noise? Four years of daily price movements averaged into a single plot is a pretty good sample size.

      Subjectively, I look at that plot and am inclined to say that the total difference in price movement is 5 to 10 times what appears to be the noise or natural variation. That by itself is just an opinion and doesn’t mean much. The real proof lies in whether you can, over the course of four years, make the same trade every single day based on two fixed times and end up with a gain or loss that is different from the actual gain or loss in the gold price itself over those same four years. And this is exactly what Mr. Laird has shown in the first plot above.

      To frame the answer in terms of your question, I would expect the entire range of price movements to be traversed at all times during the day. In other words, one time would look like every other time during the day. Any perceived differences in behavior would be “lost in the noise”.

  2. Tom Thumb

    Paul, Your assessment seems to hit the nail on the head. Does it all mean gold is doomed to manipulation until the market IS FREE ?

    • Paul Carter

      The power of gold as money is that it cannot be created out of thin air – except that in our current environment, it can be via derivatives. Until the market chooses to distinguish between physical gold in hand and paper promises, the short term gold price will be subject to those who can generate the most paper promises.

  3. stan morgan

    Another interpretation is at A.M. the gold price was higher than at PM when those who purchased gold sold. View of the Intraday price movement of gold, displays a high price before the mid-day, and lower price in the PM. This confirms the possibility that purchasing gold before the mid-day at a high price would result in a loss if the gold was sold at PM. Also, if you view the price of gold at start AM, and the price of gold end PM a straight-line is visible. The price of gold peaks during a central time, or analogous to a normal curve, which is a random distribution.

  4. rg

    how do does the manipulation theory explain 230/oz to 1900/oz?
    700% gain was what the “government” wanted but not higher?
    And the loss from 1980 to 2003? To what purpose, what agenda do these “manipulations” serve?
    And the London Gold fix is exactly that as transparent as could be, a fixed price so banks can settle. Like NYSE closing at 4:00pm so trades can settle. Is that manipulated?

  5. damodaram

    hats off to your revealations.where is thegold/what is the etf.a bogus expose the frud perpetrated.

  6. Brian Young

    Your explanation is just spot on. These movements are natural and likely to remain moving every single day of the year. But what I always feel is, they will raise 5 points, then down 2 points, again raise 6 points and down 1 points. In this way, the overall value of gold will be increasing only. 🙂


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