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Central banks and our dysfunctional gold markets
The account of gold market rigging has made its way to the Mises Institute, thanks to an essay by financial writer Marcia Christoff-Kurapovna:
Many investors still view gold as a safe-haven investment, but there remains much confusion regarding the extent to which the gold market is vulnerable to manipulation through short-term rigged market trades, and long-arm central bank interventions. First, it remains unclear whether or not much of the gold that is being sold as shares and in certificates actually exists. Second, paper gold can theoretically be printed into infinity just like regular currency – although private-sector paper-gold sellers have considerably less leeway in this regard than central banks. Third, new electronic gold pricing – replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 – has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them.
The question of rigging has been brought to media attention in the past few months when 10 banks came under investigation by the US Commodity Futures Trading Commission (CFTC) and the US Department of Justice in price-manipulation probes. Also around that time, the Swiss regulator FINMA settled a currency manipulation case in which UBS was accused of trading ahead of silver-fix orders. Then, the UK Financial Conduct Authority, which regulates derivatives, ordered Barclays to pay close to $45 million in fines against a trader who artificially suppressed the price of gold in 2012 to avoid payouts to clients. Such manipulations are not limited to the precious-metals market: in November of last year, major banks had to pay several billion dollars in fines related to the rigging of foreign-exchange benchmarks, including LIBOR and other interest-rate benchmarks.
These cases followed on the heels of a set of lawsuits in May 2014 filed in New York City in which twenty-five plaintiffs consisting of hedge funds, private citizens, and public investors (such as pension funds) sued HSBC, Barclays, Deutsche Bank, Bank Scotia, and Société Génerale (the five traditional banks of the former London Gold Fix) on charges of rigging the precious-metals and foreign-exchange markets. “A lot of conspiracy theories have turned out to be conspiracy fact,” said Kevin Maher, a former gold trader in New York who filed one of the lawsuits that May, told The New York Times.
From Zero Hedge:
Zero Hedge: Citigroup just cornered the “precious metals” derivatives market
Zero Hedge reports that analysis of the latest quarterly report of the U.S. Office of the Comptroller of the Currency discloses that precious metals derivatives, excluding gold, held by Citigroup have exploded and that the investment bank likely has cornered the silver market, which likely explains the metal’s failure to respond to the international financial turmoil, just as gold has failed to respond to it. The big question, Zero Hedge notes, is: Who is Citigroup’s counterparty?
Here’s betting the U.S. Treasury Department and Federal Reserve know but won’t be telling.
From King World News:
Bank for International Settlements is trying to hide a terrifying nightmare that is going to send the whole world into a full-blown panic
The explosive growth in derivatives held by banks threatens to cause an explosion that central banks will try to forestall by creating nearly infinite money, only to fail as the world financial system collapses, gold fund manager Egon von Greyerz tells King World News. His interview is excerpted at the KWN blog.
China wants to steal gold market ‘reins’ from New York and London
China has been making it very clear that it wants more control over the global gold market, but will have to go through New York and London first.
“Given that China is the epicenter of the physical gold market, it does make sense that the Chinese government would want its physical Shanghai gold market to supplant the Comex derivative market (and others) as the primary global price-setting mechanism,” said Anthem Blanchard, chief executive officer of online precious-metal retailer Anthem Vault.
China is, after all, the world’s largest producer and one of the biggest buyers of the metal, often running neck and neck with India as the globe’s top consumer. …
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