Gold: Rigged Market?

| May 12, 2014 | 0 Comments

Maybe you’ve heard this allegation before.  I know I have…

The gold market is rigged.

Conspiracy theorists proclaim big banks manipulate the price of gold for their own economic benefit.  The theory isn’t a new one.  I remember hearing this theory over a decade ago.

But to be perfectly honest, I’ve never put much confidence in these allegations.  After all, most all of the manipulation theories have been confined to internet message boards and offbeat investment conferences.

Until now…

A class-action lawsuit has just been filed in Federal court against some of the world’s largest banks.  Deutsche Bank, Bank of Nova Scotia, Barclays, Societe Generale, and HSBC are all accused of gold market manipulation by AIS Capital, a Connecticut-based hedge fund.

AIS runs three gold-based funds that have taken a beating over the past year.  The hedge fund claims their losses are partially due to bank collusion. 

According to the lawsuit, the real sticking point is the “gold fix”…

In case you’re unaware, the gold fix has occurred every trading day since 1919.  Back then, bankers met in the privacy of a London office to exchange information and set a daily benchmark price for the yellow metal. 

These days the fix happens via telephone- one call at 10:30 a.m London time, and another at 3 p.m.  After banks set the fix, market participants then use those prices to buy and sell the metal and its derivatives.

But according to the lawsuits, there’s a problem with that process…

During the fix call, which lasts a few minutes to an hour, banks are accused of trading on information made available during the private and unregulated meeting.  In other words, banks are establishing trading positions on non-public information, just before the rest of the market is privy to it.

I have to admit, it sounds fishy

Making the possibility of gold market rigging even more plausible is the fact various banks have already been found guilty of manipulating the London interbank offered rate (LIBOR).

As you may know, LIBOR is used to set the rates for trillions of dollars of loans around the world.  Mortgages, student loans, credit cards, car loans- many are based on LIBOR.

Authorities in the US, Asia, and Europe have already collected $3.6 billion in fines from big name banks to settle manipulation claims.  What’s more, there’s a new lawsuit from the Federal Deposit Insurance Corporation (FDIC) based on the same claims.

And that’s not all…

There’s an ongoing investigation into alleged manipulation of global currencies.  I won’t go into all the details here, but there’s growing evidence banks have been colluding in these markets as well.

If banks can manipulate LIBOR and global currencies, they’re likely capable of manipulating gold as well.  Of course, it would be incredibly irresponsible of me to say bankers are guilty of manipulating the yellow metal just because they’ve been caught in other markets.

I’ll let the Manhattan Federal District court decide that one.

Until Next Time,

Justin Bennett

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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