Gold Rigged “To Benefit Banks, At Expense Of Producers, Traders, Investors, Jewellers And Other Market Participants”?

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Gold To Rise On “Systemic And Geopolitical Risk” As Price Fixing Ends

Gold was 0.6% higher this morning as a drop in equities and the dollar and increased tensions in the Middle East led to demand for gold as a hedging instrument and safe haven asset amid increased holdings in the largest exchange traded product. Palladium rose to a 13 year high on supply concerns.

Bullion for immediate delivery advanced as much as 0.6% to $1,327/oz, the highest price since July 3. Gold is now 10% higher this year, the best start to a year since 2010.



London's scandal-hit gold price fixing under spotlight (AFP)


Gold bullion
climbed to as high as resistance at $1325 in midmorning New York trade and then fell to $1314.01, but it then bounced back higher in afternoon trade and ended with a marginal gain of 0.02%. Silver rose to as high as $21.19 and also ended with a gain of 0.1%. Euro gold fell marginally to about €969/oz but continues to consolidate just below €1,000/oz.


Gold is in a tight range between $1,310 and $1,325 for the last four days. Gold is no longer overbought as spot gold's 14 day relative strength index (RSI) has come down to 61.9 this morning, its lowest since mid June. It has fallen sharply from the recent high of 71, it reached at the end of last month - a reading over 70 suggests overbought conditions.


Gold in US Dollars - Year To Date 2014

On the COMEX, money managers increased net long positions for a fourth straight week through July 1 and holdings in exchange traded products are climbing at the fastest pace since 2012. SPDR Gold Trust,  the world's largest exchange-traded gold fund, said its holdings rose another 1.8 tonnes to 798.19 tonnes on Monday.


We featured in an Agence France Presse feature article on the London gold fix yesterday:

 

Gold To Rise On “Systemic And Geopolitical Risk” As Price Fixing Ends

London (AFP) - London's century-old process for fixing gold prices, tainted by a rigging scandal and attacked by critics as old-fashioned, goes under the spotlight this week in key talks aimed at modernising the process.


Analysts said that the market price of gold, which is driven by investment and jewellery demand, could climb as a result of an overhaul.

Buyers and sellers of the precious metal will meet in London on Monday to discuss the setting of the global benchmark, which affects the flow of billions of dollars worldwide every day. The World Gold Council (WGC) will host an eagerly-awaited forum with retail and central banks, exchanges, mining firms, refiners, traders and other industry groups, while Britain’s Financial Conduct Authority (FCA) watchdog will attend as an observer. The benchmark gold price is set by four banks at 10:30am London time (0930 GMT) and 3:00pm, via teleconference.

The banks — Britain’s Barclays and HSBC, Canada’s Scotiabank and Societe Generale of France — are all members of the Gold Fixing Company and agree the price twice daily. Germany’s Deutsche Bank pulled out of the panel earlier this year.

The method of setting gold prices is set to be modernised.

The process begins with the so-called spot price of gold, which is based on the current market rate of contracts for physical delivery of the metal.

The four banks must then declare whether they are interested in buying or selling at this level. The price can fluctuate depending on the balance of supply and demand, and settles on a so-called “fixing”.

The system lurched into crisis this year when Barclays was fined more than 26 million pounds($45 million, 33 million euros) by the FCA after an ex-trader at the troubled bank admitted attempting to manipulate the gold price.

Barclays is among several banks fined billions of dollars by regulators for foreign exchange rigging, prompting a broad review of how global financial benchmarks are set.

Critics argue the gold-price fixing process is also open to abuse.

“It lacks transparency, which means prices can be rigged to benefit banks, at the expense of producers, traders, investors, jewellers and other market participants,” said Mark O’Byrne, research director at broker GoldCore.

“Prices should be determined by market forces of supply and demand and not due to a bank’s determination.” The process is little changed since its creation on September 12, 1919, when the Gold Fixing Company’s five founders — including NM Rothschild & Sons — agreed one single daily price fix in British pounds.

O’Byrne added: “The gold fix is anachronistic in the modern technological age of electronic trading and a move to electronic trading seems inevitable. At the same time, this will not be a panacea as oversight and transparency remains important.” Caroline Bain, senior commodities economist at research consultancy Capital Economics, said transparency was needed to prevent price rigging.

The price of gold jewellery could rise as a result.

“It can be manipulated even though it is based on real deals,” Bain told AFP.

“Traders working for institutions involved in the ‘fix’ can make deals that would influence the price in a way that suits their portfolio.

“There is a lack of transparency about how the price is derived. It also contributes to a much wider lack of information on the size of the gold market.” For its part, the WGC has already stated that the gold market needs greater transparency and auditing of the data used to determine the London price fixings.

Between two and four million ounces of physical gold transactions are based on any given day’s fix price, according to estimates from commodities research specialist CPM Group.

Back in May, Barclays was fined by the FCA for failing to adequately manage conflicts of interest between the bank and its customers.

The watchdog uncovered systems and controls failings in relation to a fixed London pricing of gold over a nine-year period to 2013. Bain added: “The case was more about internal problems at Barclays as they were not monitoring the trader’s activity, but it did highlight the fact that the gold fix can be manipulated.” The gold market remains subject to volatility as the metal is often seen as a haven investment in times of geopolitical uncertainty.

In recent weeks, mounting violence in Iraq has sent traders fleeing to gold.

Gold jumped last Tuesday to a 3.5-month spot price high of $1,334.06 per ounce on the London Bullion Market.

Prices had rocketed to an all-time peak of $1,921.15 per ounce in September 2011 on fears of a fresh global recession amid the raging eurozone debt crisis.

The market could return once more to such levels if the fixing system is overhauled, according to O’Byrne.

“We believe that a more transparent and reliable fixing could lead to higher gold prices as we suspect that prices are artificially low at this time and do not reflect the delicate supply demand balance in the physical gold market,” he told AFP.

“Nor do they capture the degree of systemic and geopolitical risk in the world today.”
(AFP)

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Wed, 07/09/2014 - 12:52 | 4940050 SonoftheAR
SonoftheAR's picture

Quote..."Buyers and sellers of the precious metal will meet in London on Monday to discuss the setting of the global benchmark, which affects the flow of billions of dollars worldwide every day. The World Gold Council (WGC) will host an eagerly-awaited forum with retail and central banks, exchanges, mining firms, refiners, traders and other industry groups, while Britain’s Financial Conduct Authority (FCA) watchdog will attend as an observer." End-quote

I stopped reading after that sentence... Wash, rinse and repeat. Same ol' same ol'. Again. IMHO.

 

 

Wed, 07/09/2014 - 12:41 | 4939976 tomcat1762
tomcat1762's picture

The entire market is rigged, top to bottom, bottom to top, every aspect.  Fraud is dominant.  Every number coming out of wall street or the gov't is conjured up from statistical lies.  At this point it is simply a spectator sport at best for the few but growing legions of the awake.  Bucky Fuller's response to Sun Tzu, "don't waste time fighting them, invent that which replaces them (the offending corrupt system,)" is emerging globally (from http://halfpasthuman.com/).  Everything that you see in the news is scripted, including the numbers.  Bitcoin is our best chance of replacing the financial system with something approaching honest money, that and outlawing debt-which I think is a great idea just to keep everyone from imploding the economy every generation.

Wed, 07/09/2014 - 10:38 | 4939384 Quinvarius
Quinvarius's picture

The gold fix will end because it is a physical exchange of bars of gold that no longer exist.  The gold to continue a physical market is simply no longer available.  Ending the fix is damage control.  These guys need to be paper only.  It is not some crusade for justice.  It is a symptom of the massive problems in the gold market.  They would keep on selling other people's and government gold if they could.

Wed, 07/09/2014 - 10:20 | 4939343 Fuh Querada
Fuh Querada's picture

"Gold To Rise" - what fucking stupid syntax is that?

Wed, 07/09/2014 - 09:59 | 4939252 Jack Sheet
Jack Sheet's picture

Another "expert" who wants us to believe that "RSI" and other chart voodoo allow prediction of future prices from past data.

Wed, 07/09/2014 - 10:27 | 4939372 DeficitAlchemist
DeficitAlchemist's picture

Agree, Anytime an article has '... and the RSI hit 61.3' In it, I reclassify the author to the moron category and move briskly on..

 

Lagging maths formula's on already baked in price action is the 'idiot switch' side of Technical Analysis.. please go back to cycles, seasonalities, patterns, ralative valuations or just write for the 5 year olds..

Wed, 07/09/2014 - 10:44 | 4939440 Jack Sheet
Jack Sheet's picture

My specific criticism here is that RSI and other momentum indicators are functions of stuff like up and down price close averages over x days, or moving averages over x and y days, or whatever, where x and y are arbitrarily selected. And they contain no more information than the price chart itself. These days you can't trust volume information any more, which at least used to be an independent piece of information.

Wed, 07/09/2014 - 10:27 | 4939370 DeficitAlchemist
DeficitAlchemist's picture

..

Wed, 07/09/2014 - 09:50 | 4939219 Herdee
Herdee's picture

It coincides with China bringing in huge amounts of gold through secret military channels,through Russia and now through Shanghai which bipasses Hong Kong.The Chinese are going to invest and modernize the largest gold mine in the world which is located in eastern Russia.They only buy offshore and in devalued American Dollars.They don't use Renmindi and they don't buy on their own Exchange.They like to keep a low profile.When the world monetary system resets and it will,the Chinese want to sit at the table from a position of power.In only a couple of years and if not sooner,China's GDP will outweigh the United States.You have to understand that the Eurasian Trade Pact along with trading in alternate currencies beside the U.S. Dollar is the economic way that Communist China will implode corruption in Washington and their 900 military bases worldwide.It can't be done from a military angle.The destruction of the U.S. manuacturing base was and is successful.The next step to recovery can only be done by allowing Chinese foreign investment to come in and take over to rebuild it.Some say the Federal Reserve is now owned by the Communists from China.They sold out America.

Wed, 07/09/2014 - 14:00 | 4940311 messymerry
messymerry's picture

Hardee Dude,

Go out on a limb for us and give us your best guess as to when the reset will occur...

Thankee,,, 

Wed, 07/09/2014 - 08:53 | 4938988 RaceToTheBottom
RaceToTheBottom's picture

Doesn't a 24 hr market mean that no price fixing is required?

Wed, 07/09/2014 - 08:25 | 4938880 Racer
Racer's picture

It is not in the banksters interests to change the fixing of the gold price otherwise it would have been done a very very long time ago!

Wed, 07/09/2014 - 08:15 | 4938851 KingdomKum
KingdomKum's picture

we few,  we happy few,  we band of silver holders  .  .  .

Wed, 07/09/2014 - 11:43 | 4939674 jaxville
jaxville's picture

What the heck ...?!?! This is another new slant on an old story. GATA has documented the manipulation for almost fifteen years now. Why don't we see the GATA releases here instead of some second hand rehash of this issue?

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