I found the following article interesting, but a bit above my pay grade, so I sent it to a friend of mine who used to head up the gold trading desk at one of the five banks that oversee the London gold fixing. I pretty much knew what he would say in advance because we have discussed this topic before. Here is the article and I will follow it up with my friends reply…
Gold Price Rigging Put Investors on Alert; German and UK Regulators Investigate
By Madison Marriage
Financial Times, London
Monday, February 24, 2014
Global gold prices may have been manipulated on 50 percent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.
The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price, which is set twice a day by Deutsche Bank, HSBC, Barclays, Bank of Nova Scotia, and Societe Generale in a process known as the London gold fixing.
Fideres’ research found the gold price frequently climbs (or falls) once a twice-daily conference call between the five banks begins, peaks (or troughs) almost exactly as the call ends, and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behavior.”
This “is indicative of panel banks’ pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders,” Fideres concluded.
“The behavior of the gold price is very suspicious in 50 percent of cases. This is not something you would expect to see if you take into account normal market factors,” said Alberto Thomas, a partner at Fideres.
Alasdair Macleod, head of research at GoldMoney, a dealer in physical gold, added: “When the banks fix the price, the advantage they have is that they know what orders they have in the pocket. There is a possibility that they are gaming the system.”
Pension funds, hedge funds, commodity trading advisers, and futures traders are most likely to have suffered losses as a result, according to Mr. Thomas, who said that many of these groups were “definitely ready” to file lawsuits.
Daniel Brockett, a partner at law firm Quinn Emanuel, also said he had spoken to several investors concerned about potential losses.
“It is fair to say that economic work suggests there are certain days when [the five banks] are not only tipping their clients off but also colluding with one another,” he said.
Matt Johnson, head of distribution at ETF Securities, one of the largest providers of exchange-traded products, said that if gold price collusion is proven, “investors in products with an expiry price based around the fixing could have been badly impacted.”
Gregory Asciolla, a partner at Labaton Sucharow, a U.S. law firm, added: “There are certainly good reasons for investors to be concerned. They are paying close to attention to this and if the investigations go somewhere, it would not surprise me if there were lawsuits filed around the world.”
All five banks declined to comment on the findings, which come amid growing regulatory scrutiny of gold and precious metal benchmarks.
BaFin, the German regulator, has launched an investigation into gold-price manipulation and demanded documents from Deutsche Bank. The bank last month decided to end its role in gold and silver pricing. The U.K.’s Financial Conduct Authority is also examining how the price of gold and other precious metals is set as part of a wider probe into benchmark manipulation following finding of wrongdoing with respect to LIBOR and similar allegations with respect the foreign exchange market.
–Financial Times, February 24, 2014
Here is the reply…
It’s impossible, just think about it ! The futures market has the largest volume in gold and no one who understands how the fix works would suggest that the OTC (physical market) could be manipulated, when the futures market is trading along side.
If the futures market goes higher all the selling on fix pulls back, so the fix goes higher, same on downside…… sometimes the fix would last less than 2 minutes, other times over an hour depending on what was going on in the futures market. So if there is any manipulation then you are taking the position that the exchanges are all manipulated…..
Believe me when I tell you that if there was ANY way of manipulating the fixing I would have done it (I got paid basis results). It was impossible to manipulate; nobody was or is bigger than the market! And for what results? To gain an extra $1 or $2? Just think of how silly that sounds….
We once bought 500,000 ounces of gold on the fixing and gold closed nearly $20 lower than the fixing price. The next day gold rebounded and never looked back; but that is how it went from time to time.
We used to have a saying in the gold market – “Eats like a bird, shits like an elephant,” or “Takes the stairs up and the elevator down!”
This article makes no sense, as obviously they don’t understand how the fixing works. Once they do , they will walk with their tails between their legs.
David the fix has been around almost 100 years and they are saying finally they figured it out. Don’t drink the Kool-Aid !
Talk about all the important reasons that gold will be the go to asset. Talk about consumer debt and how the FED will have to reverse it’s course on Tapering, come the 2nd half of this year, when they realize that the US consumer is tapped out and we have a huge inventory hangover on the retail side, and that consumer debt is approaching 2008 highs…… We are Japan – the Central Banks have screwed up big-time. This is a worldwide problem and we are going to get hyperinflation in the coming years.
As I explained to you in the past about the silver arbitrage trade, I have also given you the heads up on this…. Tell your readers not to waste their time with this; there is nothing to this. Focus on the stuff that makes sense and get people to invest in gold for the right reasons not because of some “maybe” story.
As you can see, my friend agrees with the major themes we embrace. The Fed will have to resume QE, in one form or another before this summer and we are on the road to hyperinflation. All of the talk of manipulation, which is fascinating, is no longer relevant. Gold is getting ready to “do its thing!”
Every so often we come across an article that is of extra value to our readers. The following article by James Anderson and published at GoldSilver.com is one such article. We have been writing about this subject for a long time and now, the topic is starting to see the light of day. Pick your gold dealers very carefully and yes, we really are one of the good guys.
Alleged Gold & Silver Scams Abound – www.goldsilver.com
GoldSilver.com – James Anderson
FEBRUARY 20, 2014
When you first set off to buy silver and gold products, there are many factors, which will likely influence your decision-making.
A product’s price is most certainly one of the most important decision making factors. Gold and silver dealers know this, and therefore most dealers build their business models and advertising campaigns around low price offers.
Dealers understand that most people are trained to think that in a shopping comparison, lowest price wins.
This presumption should especially hold true when investors are comparing fungible or like-kind silver and gold bullion products from one dealer to the next.
Who doesn’t want to save some fiat currency on a trade if they can?
Apparently there are hundreds of active silver and gold buyers who might prefer to actually receive the products they supposedly bought rather than simply saving a few bucks on their original purchase price.
Last week, The Orange County Register reported about hundreds of allegations against an online gold and silver bullion dealer located here.
The article states, “Consumers across the country have reported late or missing shipments of rare, silver and gold coins purchased from the Orange County precious-metals dealer. Clients say they have lost tens of thousands of dollars in investments, prompting some to take the business to court.”
About.ag, a silver and gold Internet blogger, has painstakingly documented this delayed delivery fiasco since its inception (click here for more details).
According to The Better Business Bureau, there are more than 200 complaints regarding the dealer over the last 3 years.
Continue reading on Goldsilver.com.