All markets are rigged. But this is the story of one market in particular – the gold market. For a long time the price of gold has been fixed in London, and increasingly people are starting to question this process.
In its article “Banks Sued On Claims Of Fixing Price Of Gold” The New York Times highlighted the gold price suppression case. Traders and activists have been crying foul for years regarding the price of gold, arguing that it is rigged like energy prices have been by companies such as Enron and JP Morgan, and LIBOR. At the beginning of this week, on Monday, these arguments got a new audience: a federal court.The 40-minute hearing brought together lawyers for more than 20 plaintiffs gathered in Federal District Court in Manhattan to coordinate their lawsuits against five banks which make up the London Gold Fix. The suits were filed by hedge funds, private citizens and public investors like the Alaska Electrical Pension Fund, who contend that banks have used their privileged positions as market makers to rig the gold price.
The lawsuits throw into question the integrity of the gold fix which has been in existence since 1919. As The New York Times puts it, “a handful of bankers began to meet in the wood-paneled offices of N. M. Rothschild & Sons in London. The purpose of the fix is to set a benchmark price for gold, which is subsequently used by dealers, central banks and mining firms to buy and sell the precious metal and its various derivatives.” The fixes take place twice a day by phone and generally last 10 minutes to an hour.
The gold fixing process, according to the suits, entails member banks trading on the insider information before the public has access to the data. Barclays, Scotiabank, Deutsche Bank, HSBC and Société Générale, all banks involved, deny, or decline to comment, on the collusion charges.
So many plaintiffs had joined the lawsuit that a hearing was held Monday to consolidate the cases and to appoint a lead lawyer. There are still more lawsuits being filed. They focus on two facts: that the gold fix is unregulated and that member banks can trade gold, and gold derivatives, during the call.
Regulators in many countries have noted the gold fix lack of regulation, in particularly in Britain and Germany. The Financial Conduct Authority of Britain looked at other benchmark rates, for gold and silver, per the investigation of Libor. The Federal Financial Supervisory Authority of Germany, or BaFin, is looking at the trading of precious metals as part of an inquiry into precious metals manipulation.
The United States’ Commodity Futures Trading Commission reviews the prices of commodities but has yet to open a formal investigation into gold.
More than 20 traders have been suspended or fired as part of internal investigations into potential manipulation of currency markets. But no suspensions have emerged related to precious metals trading.
Deutsche Bank is getting out of the fix as of May 13, though it remains a defendant in the consolidated cases. Judge Caproni is considering whether to split the plaintiffs into two groups — one for those that trade physical gold and another for those that trade gold futures — but her decision will not come until at least the end of May.
The take home point of the matter is this: this will be a lengthy process, and it is highly unlikely any of these banks will be found guilty of the charges. All markets are rigged, including the market for justice. Central banks rig interest rates, inflate asset prices all to benefit few players on the global scene. All this is made possibly by fractional reserve banking, fraud deceit and malfeasance. In other words, business as usual.
For more information, stay tuned to the Gold Silver Bitcoin Blog.