News came out late Tuesday that the gold market will be investigated in London for price fixing in similar fashion to the Li (e) bor (London interbank offer rate) rates. I have absolutely zero doubt that this is true with the exception of one minor detail. In the case of Li (e) bor, the “fixing” of rates was between dealers. Yes it did benefit the central banks and various global treasuries with rates lower than they would have been but I am skeptical that any direct coordination existed between firms and central banks. As I’ve written prior, I was somewhat surprised that any blame or fingers were pointed in this episode because it does hit pretty close to central banks homes.
Gold price “fixing is a whole different story because a part of the “mechanism” to suppress price comes directly from central banks and treasuries themselves. Namely the physical gold itself is to make delivery. Silver has also been “investigated” twice by the CFTC; both times it “passed” with so called flying colors. This last time if you’ll recall, the CFTC claimed “nothing actionable” was found. Well duh…what do you suppose this means? They “found” nothing that they could take “action” on. Oh they found something alright (all they had to do was pull a simple time and sales report). I’m sure they found that silver was being manipulated at the “behest” of an entity that they could not “reprimand.” How can I say this, surely any “entity” can be reprimanded…right?
If you go back more than 10 years ago to when Reg Howe sued the BIS only to win but then be told that he had “no standing” which was then followed by Blanchard and Co. suing Barrick Gold and JP Morgan, we have already heard the same thing that UK regulators will hear. We are “agents for the central bank and doing their bidding, now go away.” To refresh your memory, Barrick testified in the Blanchard vs. Barrick and JP Morgan case that they were agents for the Fed, acting on their behalf and thus could not be sued. Does this not tell you everything that you need to know? This suit ended in a settlement but at least we did get to hear “you can’t sue us because we were only acting on the behalf of the government.”
Which brings us to the current “investigation”…what’s the point? Actually I can’t even understand why this hasn’t been cut short already because either the investigators are so foolish that they needed to be told not to investigate or they know what they’ll find and come up with some wording like “nothing actionable.” They cannot find “manipulation” has occurred for several reasons because then too many questions will arise. Questions like “where did the gold come from?” Then this would unleash a trade called “it’s undervalued” and investors would scramble for the remaining real (and scarce) metal. This is a thread that if pulled on could unravel everything, everywhere. A finding that gold prices are “fixed” would break confidence and lead to a very quick unwinding of everything leveraged.
Before I finish this, yesterday I had a slew of “opinions” on this topic in one form or another.
Even John Hathaway is throwing up his hands and saying that he doesn’t know when it will end but a reversion to true value will occur “sooner or later.” I will chime in and say that the whole exercise of investigating the “London fix” is completely a waste of time. The price of gold is set twice a day at the AM “fix” and PM “fix.” This is called the “London Gold fix.” So this investigation will decide whether or not the price is “fixed?” Really? Even though they tell you upfront in the name itself that the price is “fixed?” Does anyone really believe that the close knit clan of dealers doesn’t talk amongst themselves? Does anyone really believe that the 1,500-2,000 ton shortfall of supply versus demand over each of the last 15 years has not been filled from THE only place possible that has this type of supply? Do you really think that these investigators won’t hear the words “sovereign immunity” and the just “move along, nothing to see here?” Don’t hold your breath on this one folks.
In reality this scam/scheme will end when there are no more ounces left to deliver to China. Either they pull the plug on their own timetable or they don’t receive delivery and then pull the plug. Hoping for the Brits to come out and say, “Aw shucks, we rigged the gold price, we’re sorry and won’t do it again” is naïve at best with one caveat. If the gold has truly run out then I suppose it would be “proper” of them to at least have an investigation “in the works” for appearances sake!