Two DIFFERENT studies show mass manipulation of the gold market
Last week was a very interesting week for the gold market. It saw not one, but two, mainstream articles suggesting mass-manipulation in the gold market – something regular readers will know we’ve been talking about for years.
First up there was an article that appeared in the FT on February 23rd. But before we go into what was said in the article, it is very curious to note that when you click on the link to that article you now see this:
It has been taken down!
So just what did it say? Thankfully nothing really ‘disappears’ from the internet these days (just ask GCHQ), and there is a cached version at this link – the title of the article is “Gold price rigging fears put investors on alert”. From the article:
Global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.
So half the time gold is manipulated!?
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 Société Générale 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 behaviour”.
“[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 behaviour of the gold price is very suspicious in 50 per cent 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.
So Fideres looked at the data and have concluded that the price moves show a pattern of “collusive behaviour”, that this behaviour was “predetermined” and “very suspicious”.
Which all means that anyone who’s invested in gold might what to line up and join the mother of all class action law suits:
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 US law firm, added: “There are certainly good reasons for investors to be concerned. They are paying close attention to this and if the investigations go somewhere, it would not surprise me if there were lawsuits filed around the world.”
The fact that this article made it as far as being published is just amazing to us, and it is no surprise to see it pulled from the internet a day later.
Basically what the article is saying is that if you study the trading patterns around the London fix, the pattern looks like there is manipulation going on.
But this is just one study and who are Fideres anyway right? Will this bombshell article on the FT was followed up by an article on Bloomberg featuring a different study that came to the same conclusions as the Fideres study – that the gold market has been manipulated on a daily basis for years. From the article titled: “Gold Fix Study Shows Signs of Decade of Bank Manipulation”:
The London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.
And remember, this is a different study to the one mentioned in the FT article.
Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.
So another separate study concludes that there are “signs of collusive behaviour” in the gold market – just like the Fideres study. But just who is Professor Rosa Abrantes-Metz and Albert Metz?
Abrantes-Metz advises the European Union and the International Organization of Securities Commissions on financial benchmarks. Her 2008 paper “Libor Manipulation?” helped uncover the rigging of the London interbank offered rate, which has led financial firms including Barclays Plc (BARC) and UBS AG to be fined about $6 billion in total. She is a paid expert witness to lawyers, providing economic analysis for litigation. Metz heads credit policy research at ratings company Moody’s.
So Metz isn’t a ‘nobody’, and she not only advises the EU on financial benchmarks, she wrote a paper titled “Libor Manipulation?” in 2008 – four years later it was found that Libor had indeed been manipulated for many years, so she has a pretty good track record in being right. The article continues:
“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”
So was this about those five gold price ‘fixers’ just trying to make as fast buck, or is there something else going on here?
Large price moves during the afternoon call were also overwhelmingly in the same direction: down. On days when the authors identified large price moves during the fix, they were downwards at least two-thirds of the time in six different years between 2004 and 2013. In 2010, large moves during the fix were negative 92 percent of the time, the authors found.
92% of the time the moves during the ‘fix’ were negative! This looks a lot less about just making a fast buck and much more like an attempt to keep the lid on the price.
So just why are these articled beginning to appear in the mainstream press? It shouldn’t be forgotten that there are not one but two investigations currently on going into gold price fixing.
Deutsche Bank, Germany’s largest lender, said in January that it will withdraw from the panels setting the gold and silver fixings. German financial markets regulator Bafin interviewed the Frankfurt-based bank’s employees as part of a probe into the potential manipulation of gold and silver prices…
…Britain’s Financial Conduct Authority is also scrutinizing how prices are calculated. The regulator published a report this week outlining its remit for regulating commodities including gold, saying that while it’s responsible for commodities derivatives, it doesn’t regulate physical commodities.
So are the mainstream press finally realising that a regulator somewhere in the world is about to come out and call “mass manipulation” in the gold space and they want to make it appear like they’ve been doing their job properly all along? Who knows?
But one thing is for sure, the regulators are looking in the wrong place for the ‘real’ manipulation of the gold market. For that you’d have to take a look at the books at the BoE and the Fed – and if we did ever get a peak inside those books they would surely show gold vaults drained of physical and what is there, encumbered by multiple claims of ownership, as those two central banks have been leasing, selling, re-hypothecating gold every which way to sunday that it makes the activity of the big banks look like a paragon of virtue.
Link to this article: : http://www.goldmadesimplenews.com/gold/two-different-studies-show-mass-manipulation-of-the-gold-market-12566/