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Bloomberg: How to Keep Banks From Rigging Gold Prices
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Today’s AM fix was USD 1192.75, EUR 871.957 and GBP 729.466 per ounce.
Friday’s AM fix was USD 1,195.00, EUR 875.33 and GBP 731.69 per ounce.
Gold rose 0.85% and silver rose 0.74% on Friday. Gold made gains Friday but still finished the week 2.8% lower. Gold fell back below $1,200 an ounce today as technical selling and year end book squaring led to price falls.
Gold in U.S. Dollars, 1 Month - (Bloomberg)
Prices were slightly higher in Asian trading overnight as physical demand picked up in Asia and holdings of the SPDR Gold Trust rose 5.40 tonnes to 814.12 tonnes on Friday - the first inflow since November 5.
Gold in U.S. Dollars, 1 Year - (Bloomberg)
Volumes traded on the increasingly important Shanghai Gold Exchange (SGE) overnight on their benchmark 99.99% pure gold contract were a robust 14.83 tonnes. Chinese premiums edged up $2 - from $16 on Friday to $18 today.
Allegations that banks are rigging the gold and silver markets continue to gain credence and Bloomberg have published an article by Rosa Abrantes-Metz entitled‘How to Keep Banks From Rigging Gold Prices’ (see article including charts below).
Rosa Abrantes-Metz concludes that gold prices may be manipulated and gives evidence to support her assertion. Abrantes-Metz is adjunct associate professor at New York University’s Stern School of Business and a director in the antitrust, securities and financial regulation practices of Global Economics Group.
Falling gold prices despite robust physical demand this year, especially in China, have intensified allegations that gold prices are being manipulated lower. This is the contention of the Gold Anti-Trust Action Committee (GATA), influential blog Zero Hedge and others who contend that bullion banks and central banks may be intervening and surreptitiously manipulating gold prices lower in order to maintain faith in fiat currencies.
It is an important debate and one that has ramifications not just for the gold and silver market but for markets in general and for free market capitalism.
Rosa Abrantes-Metz, Director of Global Economics Group
Abrantes-Metz’s article shows how what was once dismissed as an outlandish “conspiracy theory” and the proponents of the theory laughed at as paranoid tin foil hat wearers, is now not considered quite so outlandish. This is especially the case, given the fact that banks have been found to be manipulating and rigging many markets and governments are openly active in currency and especially bond markets today.
As long ago as two years ago, the assistant editor of the Financial Times, Gillian Tett wrote in that paper that it would be “foolish” to “deride or ignore” the Gold Anti-Trust Action Committee (GATA) and their allegations regarding manipulation of the gold market.
Tett is an award-winning journalist and author and one of the most astute observants of markets and finance in the world today. Yet her article failed to lead to a wider debate and went down the ‘memory hole.’ As many positive gold facts, figures and developments have done in recent years.
Tett acknowledged that central banks intervene in and manipulate interest rates and her article explored whether central banks might also be manipulating gold prices.
“For my money, though, I think there are at least two reasons why it would be foolish simply to deride or ignore GATA, “ Tett concluded. She acknowledged that some of GATA’s points “have at least a grain of truth”.
Gillian Tett, Assistant Editor, Financial Times
“Even if you find it hard to believe that central bankers would be dastardly enough to create a plot – or competent enough to do what Gata claims – the fact is that global commodity markets are pretty murky, central banks are often opaque and western rhetoric about “free” markets is often hypocritical. Those issues merit far more debate, not just among journalists, but central bankers too.”
Abrantes-Metz article is in a similar vein and may signal the beginning of a real debate about the allegations made about gold price manipulation that have yet to be rebutted.
How to Keep Banks From Rigging Gold Prices by Rosa Abrantes-Metz
Authorities around the world are gradually piecing together a shocking picture of how banks have manipulated benchmarks that influence the price of everything from mortgage loans to foreign currencies.
Another area deserves their scrutiny: gold and silver.
In recent weeks, Bloomberg News and others have reported on concerns, among market participants and regulators, that the process for establishing the price of gold may lend itself to insider trading and other forms of unfair dealing. The available evidence strongly suggests manipulation and, given the structure of the market, possibly collusion.
The price-setting mechanism, known as the fixing, provides an easy vehicle for manipulation. Twice every business day in London, representatives of five banks and some select clients participate in a phone call in which offers to buy and sell gold are put forward. These calls determine the morning and afternoon gold fixings, which serve as the benchmark for trillions of dollars in transactions around the world. Silver fixings work similarly, with only three banks involved.
Such direct communication is conducive to collusive pricing, especially when the group of participating competitors is very small. We now know that collusion distorted both the Libor and Euribor interest-rate benchmarks, which involved many more participants. In those cases the coordination occurred through e-mails and instant messages. In the case of gold and silver, an organized live call allows for real-time signaling of the desired prices, obviating the need for additional contacts.
One needn’t look far for a motive. The participating banks all stand to gain both from using the privileged knowledge they glean during the fixing process and from influencing the fixing itself. Aside from trading in the spot markets for gold and silver, they may have significant derivatives positions tied to the benchmarks. The system isn’t set up to identify, let alone deter, such activity. It is the participating banks themselves that administer the gold and silver benchmarks.
So are prices being manipulated? Let’s take a look at the evidence. In his book “The Gold Cartel,” commodity analyst Dimitri Speck combines minute-by-minute data from most of 1993 through 2012 to show how gold prices move on an average day (see attached charts). He finds that the spot price of gold tends to drop sharply around the London evening fixing (10 a.m. New York time). A similar, if less pronounced, drop in price occurs around the London morning fixing. The same daily declines can be seen in silver prices from 1998 through 2012.
For both commodities there were, on average, no comparable price changes at any other time of the day. These patterns are consistent with manipulation in both markets.
It’s extremely odd that the prices of gold and silver are still based on such an archaic and exclusive system. Whether or not authorities seek and find conclusive evidence of manipulation, they should learn the lesson of the London interbank offered rate and reform the gold and silver markets in a way that will deter such behavior. Both metals are highly liquid commodities, so their benchmark prices could easily be set by observing actual trades. To ensure reliability, the process should be overseen by an independent institution with the appropriate governance structure and minimal conflicts of interest.
The best way to restore confidence in financial benchmarks is to remove the means, motive and opportunity for abuse.
It is an important debate as increasingly governments and central banks are distorting financial markets through constant interventions which could lead to the financial system itself being impaired.
In the western world, we have seen interest rates cut close to zero, capital injections and bank bailouts, lending guarantees, saving and deposit guarantees, favouring certain banks and institutions over others, banning short selling and now the latest policy initiative is again bailing out banks but this time bailing in depositors inbail-ins.
At the same time competitive currency devaluations are taking place globally with central banks debasing currencies. We also see outright intervention in currency markets in order to lower the value of national and supranational currencies.
Japan is the glaring example of this and Switzerland’s ‘pegging’ of the Swiss franc was in the same vein. With governments surreptitiously and openly manipulating and debasing their currencies, it would seem logical that some governments might have an interest in not seeing gold and silver prices soar.
Surging gold prices are a vote of no confidence in fiat paper currencies and government and central banks stewardship of these currencies.
This is especially the case with the US dollar as the global reserve currency and all governments have an interest in maintaining faith in the dollar and in fiat currencies which is a possible motive for intervention in the gold and silver markets.
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The $1100 is in fact a goal of the manipulators and was heralded to us some months ago by one of Roubini's underlings.
Indeed it is. I suspect a temporary bottom around $980-$1050 and then a bounce to $1180 and then back down, down, down for another 20 years. Goodbye yellow brick road...
if what you are saying ever is to be true then all nations would have +10% returns in savings accounts, all of them, and all joblessness would end, all bonds would be good without default at all times.
Do you seriously claim this? These are basic preconditions for the price of gold to drop down to $100.
Just curious what your calls were in 2007ish - 2013 when gold was going from $1100 to $800 then $1900 to now?
I was part of the sucker train. No more.
So you bought the top and sold sometime in the last two years, taking a loss.
Your track record sucks. Why should we pay any attention to you?
Fielding is Million Dollar Bonus in drag and is playing the rogue troll well.
The crustiest of his specious anti-gold ignorant babbling is certainly mattering in that kind of way, more even.
His ability to single dunghandedly blob-up the trolling means is definitely something. Hitting it and always happens.
FeelingSmellish Citizenism is brother-in-law of Chinese Citizenism, in which both involve crapping all over the place.
An interesting proposition for four reasons at least:
1. How many gold miners will be able to operate at that price level particularly with higher costs, lower grades and more difficult environments?
2. Will the price matter if your bank account is to be bailed in?
3. Will the financial system avoid some form of implosion, correction or panic for 20 years?
4. Do you honestly believe that the present level of stock market prices, bond prices and real estate prices are sustainable if interest rates start to move up?
1. Mining supply is irrelevant given that it is less than 2500 tons per year and the above ground supply is 170000 tons. Most of the gold used by industry can be supplied as offtake from copper mining.
2. An asteroid may hit the earth and wipe us all out as well. Chances are, neither will happen. I don't keep cash in the bank anyhow.
3. Short term ones no doubt, and people will run to USD and bonds for the safety.
4. ZIRP is with us for at least 5 more years, maybe even 10.
1. Mining supply is irrelevant given that it is less than 2500 tons per year and the above ground supply is 170000 tons.
That's a very interesting scenario! Let's analize it. Suppose mining disappears and the gold supply becomes fixed.
Then suppose gold was indeed in a bubble, like you claim. Suppose that its "fair" market price is $35.
Now imagine a world in which NIRP makes holding USDs unprofitable. Whoops! That's exactly the world we're in. Market logic dictates that it is much better to buy gold at its "fair" price of $35 and hold it than holding depreciating dollars, since gold will preserve its value and dollars won't.
If all market participants behave as per this logic, suddenly each and every dollar in existance is bidding for gold. Can you tell me what happens to this "fair" market price afterwards?
Do us all a favor and refrain from repeating the utterly disingenuous claim that there is a "supply" of 170,000 tons of gold. That's the total amount that has ever been mined, only a small fraction of which is actually available for purchase and/or use by industry at any given time.
If you're going to continue with the silly narrative that you were once a gold bug, but have seen the light and are now trying to awaken other poor souls, at least try to get your fucking facts straight.
And this is disingenuous how? When the price falls, "investment" gold turns to industrial gold. Its only been restricted because it was hoarded by CBs and individuals. If the price falls, it will be unhoarded in torrents.
no, it doesn't. Investment gold turns to industrial gold at the HIGHEST prices never the lowest. At the lowest prices industrial gold goes to INVESTMENT gold preparing for the future. The lower the price the HIGHER the hoarding. HIGH prices cause DIS-hoarding.
You're an idiot.
FM...I don't even disagree with what you've said and there is fundamental facts in your statements. However, there is a economic counterparty to golds "value" and that is, that you are valuing it in US Dollars. Your position has to believe that the US Dollar will maintain it's value for 10 to 20 years. That's economically possible if the rest of the world goes to WW3 and we stay on the sidelines. Else, I don't see our currency suriving the current burn rate. Now, this doesn't mean "go gold"....it also means "go anything" that can be bolted down. But in a rush...people go to gold more than they do aluminum or zinc. Anti-dollar bugs will buy anything...and I'm one of those. Gold bugs are betting for a new tsunami of gold demand during a currency meltdown where people can't get through the doors fast enough. I believe that event will come one day also. But that's not a short term trade. That's a trade that says, i want to retire someday...and I may want to buy a vacation home in the French Alps, am I going to bet my saved US Dollars will get me there? Or am I going to bet my saved gold will get me there. As for me....I'm choosing gold/silver/copper/aluminum/rhodium/platinum/palladium etc.
The reason it is disingenuous is because the way in which you use the word "supply" falsely implies availablilty.
You might as well assert that there is a large "supply" of stunningly gorgeous 20-25yo women from which to choose, while failing to mention that very few of them are actually available unless one happens to be young and very good looking, or very rich.
Good analogy. Gold and hot young women have been sought after thoughout the ages.
Hot women, however, are not divisible, barely fungible and very illiquid. This makes them unsuitable for trade.
as a former escort-driver I can tell you those hot girls are very suitable for trade.
Divisible? Offer the right price.
Liquid? Well I guess that depends on what you do after you pay.
But like Gold they never go out of style. Just ask the ancient Mayans, Egyptians or Chinese, they had no knowledge of each others cultures and existed on different continents, but all valued Gold and hot babes.
Women make horrible stores of wealth. They're bulky and not immutable. You don't want to be stuck with a harem of old ones. They make pretty good currency however, which becomes especially apparent when you get tired of having one around.
I am Chumbawamba.
and...Gold can be put in a safe and not run away in the dark of night to the next highest bidder.
Gold troll alert.
Brought to you by the fiat banking cartels.
Right, bacause anyone with a dissenting opinion is a paid shill or plant from "the tribe". There an none so blind who choose not to see.
You don't have a dissenting opinion. You have gibberish. Saying gold goes to $100 is as nonsensical as saying bread will be on for a nickel or that minimum wage will be a quadrillion dollars.
Actually, I find quadrillion dollar minimum wage quite likely.
oh boy, you are a piece of work.
Hyperinflation may drive up assets before wages.
Hyperinflation could still drive up wages.
Hyperinflation will end the existence of a currency & so end all tracking of all items, services, wages, in dollars.
So you really think hyperinflation can push that hard yet NOT end the currency earlier than that mark? Really?
Fielding Mellish
One of the .05% trying to convince the other .95%. Callin M.R. Du-mass
Especially those blind trolls who choose not to see the chart of the Fed's balance sheet and the exponential growth of world money supply, banana man.
That only applies to gold if gold retains its position as a store of value.
That only applies to gold if gold retains its position as a store of value.
Well, yes, I see what you mean. If its' "position" is retracted and say, lightbulbs become the new store of value, we're all fucked. but then, I'll bet on the thousands of years of golds history vs. the few decades of central bank paper fit only to wipe your arse with. Really you're in the wrong place to pick a fight with a bunch of goldbugs. You'll get awl fucked up wit' this bunch.
Exactly. There are 4,000 year old coins that say, Good for Gold on them. FRN gold certs lasted what, 20 years. The point being that humans could pick anything they wanted to represent money, and gold has always been the preferred form. Still prefered to this day by the monetary magicians at the CB's and some of the richest familes:
"If your very safety concious, you hold on to your gold bars"
-Evelyn DeRothchild - CNBC interview Dec 10, 2008.
It's not a matter of belief. Gold is a store of value because it's:
- valuable
and
- durable
But since it's also:
- fungible
and
- divisible
this makes it highly liquid. I.e. money.
None of these properties can be altered by perception or belief, so even if gold somehow "loses" its position as a store of value, it will come back again and again.
If you want to make gold useless as a store of value, the only real solution is to find a way to create gold out of thin air, without spending a significant amount of energy in the process.
When the CBs sell all of theirs, let me know.
The premise that Gold, as a store of value, has been destroyed in the West is absurd.
The London "Fix" is, of course, only a small part of the problem. The larger concern is Comex and LBMA. Naked shorting of paper Gold, trading up to 100 times the amount of physical Gold backing the derivatives needs to be banned like all other naked shorting. This is the primary mechanism for The Fed and The BIS to manipulate Gold prices down. And I'm not holding my breath! The only other hope is that trading slowly moves to the Asian physical markets to determine price and the Comex slowly dies as participants other than CB's and the BB's gradually recognise it as the rigged game that it is.
Yes. This is the most reasonable explanation for the growth in the Chinese physical markets and trading bourses. The Comex and LBMA are being edged out.
Gentlemen (and perhaps ladies too), excuse me for a moment:
Gillian, call me. You can reach me through Zero Hedge.
xoxo
-Chumblez.