Days Not to Buy Gold Identified

By Patrick A. Heller, Numismatic News March 09, 2010

Despite the fact that the price of gold rose more in the previous decade than almost all U.S. paper assets, the rise has no short rapid spurts. Actually, the market action that limits gold from breaking upward is just one more bit of evidence of the manipulation of gold prices.

Savvy analysts have long noted that as the price of gold might trend upward during daily trading, it has almost never increased by more than 2 percent from the previous day’s COMEX close. Once the price of gold might increase by 2 percent, that event would almost automatically trigger a round of sell orders to either cap the rise or even cause the price to retreat. Even if buyers stepped up their purchasing, it was obvious that a maximum of a 2 percent daily increase at the COMEX close was the unpublicized “rule” imposed by the U.S. government and its trading partners.

This rule of gold price manipulation also has an accompanying rule. If the price of gold goes up by 2 percent in one day, it is prevented from rising by more than 1 percent the following day. Further, under no circumstances is gold to be allowed to rise consistently, as this pattern would attract more buyers.

A few months ago, commodity researcher Adrian Douglas (whom I cited in last week’s column) reported on his long-term study of the COMEX gold closes. He tracked the percentage change from one trading day to the next. Over the course of the study, the price of gold declined from one day to the next by more than 2 percent over 100 times. It increased by more than 2 percent only six times – and this in a market where the price rose by a huge percentage over time. Only once, as best I recall, did the price of gold increase by more than 2 percent one day and by more than 1 percent the next day. Yet there were numerous instances of consecutive daily price declines of 2 percent or more.

A market free of manipulation with prices rising over time would normally show a greater percentage of strong up days than down days. A pattern of continuous price rises would encourage the “momentum” investors to enter the market. Those wishing to hold down the price of gold have an incentive to discourage such investors from helping to drive up gold even higher. The unusual consistency of this 2 percent rule is signature of a manipulated market.

Short term traders can try to take advantage of this pattern. On any day that the price of gold rises by 2 percent, consider selling and replacing at the expected lower price in the next 24-48 hours. If you are looking to buy for the long term, don’t buy on a day where the price of gold is up 2 percent. Instead, wait for a quick retrenchment within a day or two. Just keep in mind that every once in a while the gold market will act contrary to this “2 percent rule.” If you can live with that risk, then you can take advantage of the manipulation of the gold price.

Baltimore Show Report

At the Baltimore show last week, dealers continued to be tentative at buying and selling common classic U.S. gold coins (and most other rare coins). In many instances, dealers were waiting for orders before stepping up to buy coins at the bid side of the market. There was more than usual interest (as we saw in Long Beach a month earlier) in purchasing damaged U.S. gold coins, including those used in jewelry, but only at price levels that were close to scrap metal value. My own company’s sales were solid and higher than expected, given the state of the market. There was, however, one dealer who told us late in the show that he had only sold three coins up to that point.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Update (www.coinupdate.com) and Financial Sense University (www.financialsense.com). His periodic radio interviews can be heard on the Korelin Economic Report at http://www.kereport.com.