A month ago [7], regulators in Europe began their investigation into manipulation of the "London gold fixing" (and we explained the methods here [8]). While the complete history of gold manipulation [9] goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany's financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets. As The FT reports [10], BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
Via The FT, [10]
Germany’s financial regulator has demanded documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
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Deutsche Bank is one of five banks that take part in the twice-daily “London gold fixing”, and one of three banks that take part in the equivalent process for silver.
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Some bankers believe BaFin has come under pressure to show it is willing to get tough on suspected market manipulation. It was widely seen to have been slow to respond to the concerns over possible manipulation in the forex market expressed by other regulators around the world earlier this year.
Although the gold and silver fixings are, like Libor, set by small groups of banks, they contrast with the process for setting Libor in that they are based on trading activity rather than theoretical quotes.
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The visit to Deutsche offices signals that BaFin now has greater concerns over the precious metals markets. Officials have asked to observe documents and processes related to precious metals trading as well as to interview bankers, the person said.
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The other banks that take part in the gold fixing are Barclays, Bank of Nova Scotia, HSBC and Société Générale. The other banks involved in silver fixing are Bank of Nova Scotia and HSBC. As the only German member of either fixing, Deutsche is the only bank to come under BaFin’s remit.
Of course, despite day after day of closing price smackdowns (and the very occasaional vertical ramp), we are sure the regulators will find no wrong doing... for, as we noted here, this manipulation is by design, not malfeasance...it's for your own good... [9]