[heading]Gold Drops $10 In 10 Seconds As Britain Announces Gold Manipulation Investigation[/heading]
What happens when you open up an investigation into the gold market? The price drops $10 in 10 seconds.
With investigations by the CFTC into the silver market fading in the US, regulators in Britain have decided to review whether global benchmarks tied to gold trading were manipulated. This investigations is a part of a larger investigation of potential manipulation of the $5 trillion a day currency market, Libor.
This new review by Britain’s Financial Conduct Authority are the first stages of the investigation.
The inquiry is the latest attempt by regulators to focus on whether traders and banks can manipulate markets.
The gold benchmark is called the “fix,” and it provides a window into spot trading prices at different points during the day. The fix is used by hedge fund managers to help determine the value of their portfolios or, in the case of gold, to set the price of jewelry and various other products including gold.
The price of gold is set twice a day in London, and this dates back to 1919, according to the London Bullion Market Association. Currently, Barclays, Société Générale, Deutsche Bank, Scotiabank and HSBC are the member firms that help set the daily benchmarks for gold in London.
The gold fix is tantamount for some in the gold mining industry, who depend on the fix to sell output.
The commodities inquiry comes on the heels of a series of investigations into the foreign exchange market known as Libor by authorities in Europe and Hong Kong in the past months. The Justice Department in Washington and the CFTC also are scrutinizing trading.
Nine of the largest banks in currency trading have stated that they have received inquiries from regulators. Potentially 15 banks are under scrutiny, according to people close to the investigation.
The morning the investigation was announced traders in London saw a considerable rapid-fire spell of selling in the gold market. The price dropped $10 immediately. It fell throughout the rest of the day, finding some padding at the $1250 level.
IG Markets commented that the drop in price came suddenly following a 2,000-contracts sell order. This is a prime example of why regulators should be curious about the gold market. It trades like no other market. It is counter-intuitive. Gold does not comply to the logic of traders.
Obviously, this morning drop in gold price is due to electronic trading, in which robots browse data for triggers. Although the Guardian claims traders were left confused by the behavior, if they were, they must be deaf, blind and so on.