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UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge

UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge.

The last time the FT penned an article on the topic of gold manipulation, titled “Gold price rigging fears put investors on alert” it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that “Gold pricing scrutiny widens”, hardly an update that will take the world by storm, however it is notable that “even” the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.

In this case, the FT looks at one of the most habitual and recidivist manipulators of practically every asset class that the market has ever known, Swiss bank UBS, better known as the rat that isallegedly perfectly happy to expose all other manipulators in exchange for immunity, and focuses on the Friday’s admission by UBS in its 2013 annual report: “that a review of its foreign exchange operations has been widened to include its precious metals business. In the report, the Swiss bank said: “Following an initial media report in June 2013 of widespread irregularities in the foreign exchange markets, UBS immediately commenced an internal review of its foreign exchange business, which includes our precious metals business.

And while it was recently revealed that there has been unprecedented collusion and rigging of gold at the time of the London fix, the latest revelations confirms that the inquiry is going beyond merely what the venerable five member banks of the London Gold Market Fixing Ltd, on the premises of N M Rothschild & Sons: after all UBS is not part of this particular criminal syndicate, which at last check included Barclays, Deustche (soon to be replaced by Standard Bank which is merely a front for China’s ICBC), Bank of Nova Scotia, HSBC and SocGen.

More from the FT:

“A number of authorities also are reportedly investigating potential manipulation of precious metal prices. UBS has taken and will take appropriate action with respect to certain personnel as a result of its ongoing review.”

UBS has been in front of its peers in revealing important details about various regulatory probes – most notably the rigging of Libor and other interbank lending rates.

Until Friday the bank had not mentioned its precious metals business was included in its review of trading practices. There was, for example, no mention of the metals business alongside fourth-quarter results a month ago.

But before anyone gets too excited, let’s recall that the last time the CFTC did an “in depth” investigation of manipulation in precious metals, it found… nothing (however, according to Bart Chilton that was only due to the zero or negative budget allotted to the impotent regulator, until recently headed by a Goldmanite). Perhaps this time will be different, and suddenly it may be in someone’s interest to finally see gold trade up to its fair value, whatever that may be, although certainly higher than the current prevailing beaten down prices, which have seen China buy up unprecedented amounts of physical gold courtesy of manipulated paper supply and demand. Especially supply.

Better yet: we look forward to learning all about it by the staunch defender of fair and efficient gold markets, the FT. Which is why, just in case, we have saved this article too. You never know when the FT will pull down this article or that, simply for breaching the taboo topic of gold price manipulation, something the Bank of England we are confident, will be very interested in as well.

UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge

UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge.

The last time the FT penned an article on the topic of gold manipulation, titled “Gold price rigging fears put investors on alert” it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that “Gold pricing scrutiny widens”, hardly an update that will take the world by storm, however it is notable that “even” the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.

In this case, the FT looks at one of the most habitual and recidivist manipulators of practically every asset class that the market has ever known, Swiss bank UBS, better known as the rat that isallegedly perfectly happy to expose all other manipulators in exchange for immunity, and focuses on the Friday’s admission by UBS in its 2013 annual report: “that a review of its foreign exchange operations has been widened to include its precious metals business. In the report, the Swiss bank said: “Following an initial media report in June 2013 of widespread irregularities in the foreign exchange markets, UBS immediately commenced an internal review of its foreign exchange business, which includes our precious metals business.

And while it was recently revealed that there has been unprecedented collusion and rigging of gold at the time of the London fix, the latest revelations confirms that the inquiry is going beyond merely what the venerable five member banks of the London Gold Market Fixing Ltd, on the premises of N M Rothschild & Sons: after all UBS is not part of this particular criminal syndicate, which at last check included Barclays, Deustche (soon to be replaced by Standard Bank which is merely a front for China’s ICBC), Bank of Nova Scotia, HSBC and SocGen.

More from the FT:

“A number of authorities also are reportedly investigating potential manipulation of precious metal prices. UBS has taken and will take appropriate action with respect to certain personnel as a result of its ongoing review.”

UBS has been in front of its peers in revealing important details about various regulatory probes – most notably the rigging of Libor and other interbank lending rates.

Until Friday the bank had not mentioned its precious metals business was included in its review of trading practices. There was, for example, no mention of the metals business alongside fourth-quarter results a month ago.

But before anyone gets too excited, let’s recall that the last time the CFTC did an “in depth” investigation of manipulation in precious metals, it found… nothing (however, according to Bart Chilton that was only due to the zero or negative budget allotted to the impotent regulator, until recently headed by a Goldmanite). Perhaps this time will be different, and suddenly it may be in someone’s interest to finally see gold trade up to its fair value, whatever that may be, although certainly higher than the current prevailing beaten down prices, which have seen China buy up unprecedented amounts of physical gold courtesy of manipulated paper supply and demand. Especially supply.

Better yet: we look forward to learning all about it by the staunch defender of fair and efficient gold markets, the FT. Which is why, just in case, we have saved this article too. You never know when the FT will pull down this article or that, simply for breaching the taboo topic of gold price manipulation, something the Bank of England we are confident, will be very interested in as well.

Chinese Stocks Tumble On Contagion Concerns From First Shadow-Banking Default | Zero Hedge

Chinese Stocks Tumble On Contagion Concerns From First Shadow-Banking Default | Zero Hedge.

While manufacturing and services PMIs disappointed, the big problem in big China remains that of an out-of-control credit creation process that is blowing up. As we previously noted, instead of crushing credit creation, the PBOC’s liquidity rationing has forced distressed companies into high-interest-cost products in the shadow-banking world. Investors on the other side of “troubled shadow banking products” had assumed that ‘someone’ would bail them out but this evening Reuters reports that ICBC has confirmed that it will not rescue holders of the “Credit Equals Gold #1 Collective Trust Product”, due to mature Jan 31st with $492 million outstanding. The anxiety from contagion concerns of the first shadow-banking default has pushed the Shanghai Composite back near 2,000 for the first time since July – and to its narrowest spread to the S&P 500 in almost 8 years.

The Shanghai Composite is tumbling… to six month lows (and back near 2,000 for the firs time since July)…

 

and its closest (nominally) to the S&P 500 in almost 8 years…

 

As we previously noted,

…borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).

 

Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.

 

Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.

 

So the PBOC’s efforts are merely exacerbating the situation for the worst companies… for example… Zhenfu Energy…

As Reuters reports,

Industrial and Commercial Bank of China, the world’s largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market.

 

ICBC’s shares have fallen this week amid speculation that the bank would be forced to help repay investors in a 3 billion yuan ($496.20 million) high-yield investment product issued by China Credit Trust Co Ltd but marketed through ICBC branches. The product is due to mature on Jan. 31.

 

“Regarding this unsubstantiated rumour, a situation completely does not exist in which ICBC will assume the main responsibility (for the trust product),” an ICBC spokesman told Reuters by phone on Tuesday.

 

The trust product, called “2010 China Credit / Credit Equals Gold #1 Collective Trust Product”, used the funds it raised from wealthy investors in 2010 to make a loan to unlistedcoal company Shanxi Zhenfu Energy Group Ltd.

 

But in May 2012, Zhenfu Energy’s vice chairman, Wang Ping Yan, was arrested for accepting deposits without a banking licence.

Which Barclays warns:

In our view, despite the trust issuer, distributor bank and local government perhaps trying to bail out the mining company, the regulators and central government could probably allow the trust product default to happen as:

  1. government appears fairly determined to reform the financial system and cut off the implicit guarantee of financial institutions;
  2. the State Council is reportedly streamlining regulation of shadow banking including trust business; and
  3. the default of trust products could have less social impact than the default of WMPs, bonds and other products sold to the general public or have problematic practices, such as asset-pool investments.

In our view, the default of trust products could trigger some short-term negative impacts on China’s financial sector and the reputation of financial institutions. However, we believe it is positive for the healthy development of financial system in the long run because the default could do the following:

  1. Be a step to reduce the implicit guarantee of financial institutions for investment products. Banks could shift their financial liabilities back to the investors.
  2. Increase the risk awareness of both investors and financial institutions, which could correct the pricing of investment products to more risk-oriented.

Its conclusion is dire: “If the trust product goes into default, we believe it would be the first default to test the financial system.”

Here is the product…

And the growth of such products has been enormous as we have explained in great detail previously: at RMB10.1 trillion as of Q3 should the first domino fall, watch out below.

Finally for those who have forgotten, below is a quick schematic of what a WMP looks like:

As Michael PettisJim ChanosZero Hedge (numerous times), and now George Soros have explained. Simply put –

“There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years.”

The “eerie resemblances” – as Soros previously noted – to the US in 2008 have profound consequences for China and the world – nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained above.

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