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Gold Price Manipulation: What’s Next? | Zero Hedge

Gold Price Manipulation: What’s Next? | Zero Hedge.

gold fixing

Source picture: Bloomberg

It appears that the gold fanatics were right the whole time. For at least ten years, the price of gold has been manipulated. The banks are the bad guys once more, who would have thought?!

If you work at a bank and do your job the way you are supposed to, it might be smart regardless to not talk about your professional activities when you are at a party this week. Although there are ‘only’ 5 banks involved in the scandal this time, the image of the whole sector will suffer again.

The rumor that the gold price was being manipulated had been going around for quite some time and, surprise surprise, it was true! It would be impossible to draw a different conclusion after reading the demolishing report from New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Moody’s Investors Service’s Managing Director Albert Metz. The words in the report were carefully chosen, leaving room for interpretation, although no one will be fooled.

If it looks like a duck, quacks like a duck, flies like a duck, well, it is a duck then, isn’t it.

 

Gold price: decades of fixing

The process of gold fixing, which is the setting of the gold price twice each business day, just screams for manipulation, conspiracy and corruption by the banks involved. And the empirical data that was used from 2001 to 2013, shows ‘inexplicable price movements’ from as far back as 2004 (!) during the midday fix. It probably won’t surprise you that those ‘inexplicable price movements’ most often were downward price movements. In 2010 for example, 92 percent (!) of the large price movements during gold fixing were negative.

Gold fixing is done twice each business day, at 10:30am and 3pm London time during a conference call. It used to be done face to face, but since 2004 it is just a conference call. The fixing in itself is still done, however, and is vulnerable to manipulation. These calls between the five banks that are involved usually last no longer than 10 minutes, but have lasted up to an hour or longer.

The similarities with the fixing of, for example, the Euribor and Libor interest rates are obvious. The damage done by those events is impossible to calculate, but you can take it from us that we are talking about billions of dollars. Regular citizens are often at the receiving end of all this manipulation, as governments and its tax payers are the ones who pick up the bill all too often.

 

Damage: unknown

It is still too early to make a sensible estimation of the damage that the manipulation of the gold price has caused. But the story will be the same: fines will be given without any further consequence. The current old-fashioned way of fixing the gold price has seen its days however, as confidence in the process has gone up in smoke. Another method will take its place, probably with greater control and supervision.

We are curious of course, how this whole ordeal will play out. The researchers of the report are calling for a deeper investigation of the matter. They obviously want to pass on this hot potato, which is understandable. Regardless of the above, further investigation is being done in Germany already.

We predict that there will be large fines, lots of accusations and a new method for gold fixing. That, or the investigators will not succeed at producing enough evidence: considering what is at stake here, it is impossible to exclude any scenario. It is hard to surprise us these days. Ultimately, true price discovery will take hold of the gold market. That is nature’s law, which can’t be fixed by a bunch of bankers.

Want to invest in gold? First read our GUIDE TO GOLD!

 

Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.

Follow us on Twitter @SproutMoney

Gold Price Manipulation: What's Next? | Zero Hedge

Gold Price Manipulation: What’s Next? | Zero Hedge.

gold fixing

Source picture: Bloomberg

It appears that the gold fanatics were right the whole time. For at least ten years, the price of gold has been manipulated. The banks are the bad guys once more, who would have thought?!

If you work at a bank and do your job the way you are supposed to, it might be smart regardless to not talk about your professional activities when you are at a party this week. Although there are ‘only’ 5 banks involved in the scandal this time, the image of the whole sector will suffer again.

The rumor that the gold price was being manipulated had been going around for quite some time and, surprise surprise, it was true! It would be impossible to draw a different conclusion after reading the demolishing report from New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Moody’s Investors Service’s Managing Director Albert Metz. The words in the report were carefully chosen, leaving room for interpretation, although no one will be fooled.

If it looks like a duck, quacks like a duck, flies like a duck, well, it is a duck then, isn’t it.

 

Gold price: decades of fixing

The process of gold fixing, which is the setting of the gold price twice each business day, just screams for manipulation, conspiracy and corruption by the banks involved. And the empirical data that was used from 2001 to 2013, shows ‘inexplicable price movements’ from as far back as 2004 (!) during the midday fix. It probably won’t surprise you that those ‘inexplicable price movements’ most often were downward price movements. In 2010 for example, 92 percent (!) of the large price movements during gold fixing were negative.

Gold fixing is done twice each business day, at 10:30am and 3pm London time during a conference call. It used to be done face to face, but since 2004 it is just a conference call. The fixing in itself is still done, however, and is vulnerable to manipulation. These calls between the five banks that are involved usually last no longer than 10 minutes, but have lasted up to an hour or longer.

The similarities with the fixing of, for example, the Euribor and Libor interest rates are obvious. The damage done by those events is impossible to calculate, but you can take it from us that we are talking about billions of dollars. Regular citizens are often at the receiving end of all this manipulation, as governments and its tax payers are the ones who pick up the bill all too often.

 

Damage: unknown

It is still too early to make a sensible estimation of the damage that the manipulation of the gold price has caused. But the story will be the same: fines will be given without any further consequence. The current old-fashioned way of fixing the gold price has seen its days however, as confidence in the process has gone up in smoke. Another method will take its place, probably with greater control and supervision.

We are curious of course, how this whole ordeal will play out. The researchers of the report are calling for a deeper investigation of the matter. They obviously want to pass on this hot potato, which is understandable. Regardless of the above, further investigation is being done in Germany already.

We predict that there will be large fines, lots of accusations and a new method for gold fixing. That, or the investigators will not succeed at producing enough evidence: considering what is at stake here, it is impossible to exclude any scenario. It is hard to surprise us these days. Ultimately, true price discovery will take hold of the gold market. That is nature’s law, which can’t be fixed by a bunch of bankers.

Want to invest in gold? First read our GUIDE TO GOLD!

 

Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.

Follow us on Twitter @SproutMoney

German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing | Zero Hedge

German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing | Zero Hedge.

Germany’s blowback against gold manipulation is accelerating. Following yesterday’s report that Bafin took a hard line against precious metals manipulation, after its president Eike Koenig said possible manipulation of precious metals “is worse than the Libor-rigging scandal“, today the response has trickled down to Germany and Europe’s largest bank, Deutsche Bank, which announced that it would withdraw from the appropriately named gold and silver price “fixing”, as European regulators investigate suspected manipulation of precious metals prices by banks. As a reminder, Deutsche is one of five banks involved in the twice-daily gold fix for global price setting and said it was quitting the process after withdrawing from the bulk of its commodities business. The scramble away from gold fixing was certainly assisted by the recent first (of many) manipulation expose in the legacy media, when Bloomberg revealed “How Gold Price Is Manipulated During The “London Fix.” And sure enough, with Germany already very sensitive to the topic of its gold repatriation, and specifically why it is taking so long, it was only a matter of time before any German involvement in gold manipulation escalated to the very top.

Reuters has more:

“Deutsche Bank is withdrawing its participation in the gold and silver benchmark setting process following the significant scaling back of our commodities business. We remain fully committed to our precious metals business,” it said in a statement.

In mid-December, German banking regulator Bafin demanded documents from Deutsche Bank under an inquiry into suspected manipulation of benchmark gold and silver prices by banks, the Financial Times reported, citing sources.

Bafin declined to comment on Friday, but its President Elke Koenig said the previous day that it was understandable that the topic was attracting widespread concern.

“These allegations (about currencies and precious metals) are particularly serious, because such reference values are based – unlike LIBOR and Euribor – typically on real transactions in liquid markets and not on estimates of the banks,” she said in a speech

Needless to say, manipulation of the gold market would not be exactly novel to a bank which has also been named in cases related to the sub-prime crisis, credit default swaps, mortgages, tax evasion and a decade-old lawsuit suit brought by the heirs of late media mogul Leo Kirch, who accuse the bank of undermining the business.

Reuters also reports that Deutsche is now actively marketing its gold and silver fixing seats to another LBMA member, however now that the cat is out of the bag on the gold fixing manipulation scheme (the first of many), it is likely that others will seek to follow in Deutsche’s footsteps and seek to put as much distance between themselves and the wood-paneled room once located in theRothschild office on St. Swithin’s Lane in London.

We wonder which of these five gentlemen is from Deutsche?

So if everyone exits the London fixing market, what happens then?

“It wouldn’t surprise me if the other banks were looking at pulling out as well. Why would they want the aggravation?” said the source, who declined to be named.

“The more worrying point is that, if you don’t have the fixing, what do you have? There’s a lot of contractual business done on the gold fix, and if you’ve got no basis for where the price is, someone is going to lose out.

Well considering that the fixing process over the years was manipulation pure and simple, those who will lose out are the… manipulators? it would seem rather logical. And speaking of manipulation, if indeed Germany is so keen on breaking the manipulators’ back, perhaps it can demand that the pace of its gold returns from the NY Fed and Paris accelerates. It may be surprised at what it finds.

Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says | Zero Hedge

Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says | Zero Hedge.

Remember when banks were exposed manipulating virtually everything except precious metals, because obviously nobody ever manipulates the price of gold and silver? After all, the biggest “conspiracy theory” of all is that crazy gold bugs blame every move against them on some vile manipulator. It may be time to shift yet another conspiracy “theory” into the “fact” bin, thanks to Elke Koenig, the president of Germany’s top financial regulator, Bafin, which apparently is not as corrupt, complicit and clueless as its US equivalent, and who said that in addition to currency rates,manipulation of precious metals “is worse than the Libor-rigging scandal.” Hear that Bart Chilton and friends from the CFTC?

More on what Eike said from Bloomberg:

The allegations about the currency and precious metals markets are “particularly serious, because such reference values are based — unlike Libor and Euribor — typically on transactions in liquid markets and not on estimates of the banks,” Elke Koenig, the president of Bafin, said in a speech in Frankfurt today.

Actually, what makes the most serious, is that precisely because they are on liquid markets means they implicitly have the blessing of the biggest New Normal market maker of call – the central banks, and their own “regulator” – the Bank of International Settlements (hello Mikael Charoze).

“That the issue is causing such a public reaction is understandable,” Koenig said, according to a copy of the speech. “The financial sector is dependent on the common trust that it is efficient and at the same time, honest. The central benchmark rates seemed to be beyond any doubt, and now there is the allegation they may have been manipulated.”

 

Bafin has also interviewed employees of Deutsche Bank AG as part of a probe of potential manipulation of gold and silver prices, a person with knowledge of the matter has said.

We wonder how long until this particular investigation is stopped based on an “executive order” from above, because Bafin is now stepping into some very treacherous  waters with its ongoing inquiry of gold manipulation: what it reveals will certainly not be to the liking of the financial “powers that be.”

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