Gold Price Manipulation: What's Next?

Sprout Money's picture

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.

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lasvegaspersona's picture

Gold is to fundemental to the monetary to allow market forces to determine it's value. At least that is true while we are awash in mountains of gold derivatives tied to currencies. Unless the system fails they will try to keep it 'where it should' be.

gdogus erectus's picture

Let me guess. The investigation takes years. Millions spent on legal fees. All to come to the same conclusion every single other PM manipulation lawsuit comes to: Drum roll, please...... "NATIONAL SECURITY! Sorry, can't sue. Nice try. See you next time.".

Sufiy's picture

Eric Sprott on Ukraine Russia War: Capital Controls, Bank Runs, Gold and Silver Forecast 

 Eric Sprott discusses the Gold market manipulation and the set of evidence presented by a number of new reports on the subject. According to Eric, demand for Gold is exceeding available supply and it will power the Gold price much higher. China is buying record amounts of Gold and situation in Ukraine puts more strain on the global economy and its monetary system. Gold is the place you turn during the financial and political distress.

Kreditanstalt's picture

The London Fix isn't the real manipulation.

That's done on the COMEX and LBMA, via options, futures, naked shorting and lent-but-never-to-return gold.

Do something about THAT.

astoriajoe's picture

Its funny how the London fix does provide nice cover for the other. Most people will have no idea that there could be seperate problems.

Peter Pan's picture

What a laugh. The Germans are investigating whether there is any price fixing but won't investigate why the US can't hand over their gold immediately.

Quinvarius's picture

I don't think the manipulators ever profited.  As with all banker schemes, they probably exchanged short term liabilities for long term liabilities.  As in, they owe crap tons of gold down the road, plus interest, for gold they borrowed and sold as take home bonus pay yesterday.   Even when they manufacture a dip, everyone eats their lunch.  You don't get derivative books of the size these banks are loaded down with by closing out winning trades.

oak's picture

If Au indeed is traded and manipulated as FX, the damage would be US$ in next ten years.

RaceToTheBottom's picture

The fact that no one is ever penalized for these criminal activities only solidifies my determination to never use WS or their underlings for any of my financial matters again.

Imagine an engineer that continually builds bridges that fail regularly and no firm is found liable and no employees are removed or punished. 

It boggles the mind that the public has not taken matters into their own hands


yellowsub's picture

Americans are still content.  Maybe if food prices soar will there be any inkling of actions.

rosiescenario's picture

I must have missed it, when did we do away with the FTC?


I guess if you are a special interest group with plenty of campaign money to shower on D.C. you are exempt from the rules everyone else plays under....a re-hash of the Papal dispensation system.

TraderJCL's picture

More than ever it is important to be buying gold and silver.

I was asked recently if it is a good time to buy gold. I answered it is always a good time to buy gold. We purchase precious medals to hold them and secure our future.

Your Future Depends on Buying Physical Gold & Silver

astoriajoe's picture

"We purchase precious medals to hold them and secure our future."

Did you buy olympic medals or something more pedestrian?

El Oregonian's picture

Who gives a fly'in crap. Just... Keep... STACKING!...

Soul Glow's picture

If you can't see the train coming down the tunnel, quite picking pennies off the rails.

astoriajoe's picture

I always like the chart that shows the return if you bought at the morning fix and sold at the afternoon fix, vs. if you bought at the afternoon fix and sold at the morning fix. That floored me the first time I saw it.