etude graphique Adrian tres interessante , sur interventions PPT /dow et interventions sur le hui .. via entre autres JPM et ses emprunts au fond Oppenheimer de 25% de ses parts !
PAY NO ATTENTION TO THE MAN BEHIND THE CURTAIN
By Adrian Douglas
In the Midas of July 7, 2006 a café member has written an appendix that expresses his concern that the gold mining shares are being manipulated to move in unison with the Dow Jones Industrial Average. This piqued my interest so I thought I would dust the market for some finger-prints.
I took the last 18 months and cross-plotted the DJIA value each day against the HUI value on the same day.
The result can be seen in figure 1. This is not a very strong correlation (because the data is sprayed around the graph in a wide cloud) but it surprised me to see that in general over the last 18 months the HUI rose when the DJIA rose and fell when the DJIA fell!
I then looked at a cross-plot of gold against the HUI. Figure 2 shows the result. The good news is that this is a very strong correlation. In general the data lie in a well defined narrow channel and as gold rises so does the HUI and as gold falls so does the HUI. There are, however, a large amount of data points outside the channel since gold went above $600/oz. I will come back to discuss this further.
Typically the DJIA and gold should be anti-correlated. In other words if the DJIA rises the POG falls and vice-versa. In figure 3 gold and DJIA data from 1980 to 1999 are cross-plotted. It is very clear that the bull market in the DJIA was mirrored by a falling POG, which is what we would expect from asset classes that are anti-correlated.
Next let’s take a look at the cross-plot of the DJIA and the gold price for the duration of the current gold bull market from 2001 to 2006. The graph is shown in Figure 4.
I nearly fell off my chair when I plotted this! The red line shows the early part of this bull market. As expected gold is anti-correlated to the DJIA, so as the DJIA was falling the gold price was rising, until, that is, gold reached $350/oz. Then amazingly a strange thing happened. During a storm the DJIA got hit on the head and when it woke up it found itself in the Land of Oz! In this strange Land of Oz the DJIA was told by the Wicked Witch of the East (W.W.E) to follow the yellow brick road. And so it did! The DJIA has been rising in a very strong correlation with gold. Despite these two asset classes being typically anti-correlated and having so for the last quarter of a century the DJIA suddenly levitates in perfect correlation with gold. W.W.E.??…hmmmm; perhaps a code name of an undercover agent from the “Washington Watch on Equities” a.k.a. PPT!
If ever anyone wanted a picture that tells the story of stock market intervention this is it. The DOW is being bought as part of a plan to keep attracting foreign investment, which supports the dollar and keeps interest rates low, and allows the US to keep living beyond its means.
But notice that the yellow line slope is increasing. Gold is now rising much faster than the DJIA. Recently we have seen the Wicked Witch of the East have much more difficultly in pulling off the “Hail Mary” rallies. In fact recently they have been abject failures. But pay no attention to the man behind the curtain. The Mighty Wizard of Oz commands you to continue buying DOW equities!!
Now let’s return to figure 2. What can be seen since gold went above $600 is that there are a lot of data points that plot out of the channel to the upside. This means that the gold price is increasing but there is not a proportionate rise in the HUI as would be expected from the correlation. This smacks of share price manipulation through shorting. The POG went above $600 for the first time on April 13, 2006. The agreement for Oppenheimer to lend 25% of its share portfolio of mining stocks to JPMorganChase was made on May 1, 2006 (or at least that is when the update to their prospectus was made).
It is clear to me that the DOW is being manipulated higher and the mining stocks are being suppressed. But the good news is that the POG is now rising much faster than the DOW and the manipulation game is being over-powered.
Although the mining shares appear to be loosely correlated to the DOW they are not. They are STRONGLY correlated to gold. Once the manipulation of the DOW fails and gold really takes off the correlation of mining stocks to gold will mean that they will rise in lock step with gold and not fall with the DJIA.
Just pay no attention to the man behind the curtains!
July 7, 2006