The announcement that Switzerland’s Competition Commission has opened an investigation into some bullion banks for precious metal prices fixing created a bit of excitement in the gold blogosphere. I find it hard to get excited. Consider this recent history of precious metal manipulation investigations and lawsuits:
March 2013 – CFTC (US) “scrutinizing whether the daily setting of gold and silver prices in London is open to manipulation”
November 2013 – Bafin (Germany) reviewing how banks participate in gold and silver price setting
December 2013 – Rosa Abrantes-Metz (US) publishes How to Keep Banks From Rigging Gold Prices in Bloomberg
December 2013 – Bafin (Germany) interviews Deutsche Bank employees as part of a probe into potential manipulation of gold and silver prices
January 2014 – The five banks that oversee the so-called London gold fixing form a steering committee to seek external advice on how the Fix process could be improved
January 2014 – Germany’s top financial regulator said possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal
January 2014 – Deutsche Bank announces it will withdraw from gold and silver benchmark price setting
March 2014 – Academic Brian Lucey (UK) questions Rosa Abrantes-Metz methodology and findings
March 2014 – LBMA publishes article questioning Rosa Abrantes-Metz findings
March 2014 – Kevin Maher (US) files lawsuit accusing the five gold-fixing banks of manipulating prices over the last 10 years based on a draft study by Rosa Abrantes-Metz
March 2014 – AIS Capital Management files lawsuit against the five banks that set the London benchmark gold price, alleging that the banks conspired to manipulate the price of gold for their own gain
March 2014 – UBS reveals in its 2013 Annual Report that a review of its foreign exchange operations was widened to include its precious metals business
March 2014 – The 2nd U.S. Circuit Court of Appeals said silver investors failed to show that JPMorgan Chase & Co conspired to drive down the metal’s price
April 2014 – FCA (UK) visits Societe Generale SA to observe London fixing process
April 2014 – Over the past two months, U.S.-based investors and traders have filed nearly 20 separate antitrust claims accusing Barclays , Deutsche Bank , HSBC , Bank of Nova Scotia and Societe Generale of colluding to manipulate the gold price
April 2014 – Deutsche Bank resigns its seat on the London precious metal fixes without finding a buyer
July 2014 – FCA (UK): “no clear evidence” that banks are rigging the price of gold
July 2014 – J. Scott Nicholson (US) files lawsuit alleging that the silver fix banks manipulated the physical and COMEX futures market since January 2007
October 2014 – Lawsuits filed by investors since July over the alleged silver price-fixing were consolidated on Tuesday in the U.S. District Court for the Southern District of New York
November 2014 – FINMA (Switzerland) says found a “clear attempt” to manipulate precious metals price benchmarks during a cross-market investigation into trading at UBS
November 2014 – Modern Settings LLC sues Goldman, BASF, HSBC Holdings Plc and South Africa’s Standard Bank Group Ltd for having conspired to rig the twice-daily platinum and palladium “fixings”
January 2015 – Bafin (Germany) finds no evidence to support allegations of manipulation in the gold market
February 2015 – Justice Department (US) antitrust division scrutinizing the price-setting process for gold, silver, platinum and palladium in London
February 2015 – WEKO (Switzerland) looking into possible manipulation of price fixing in the precious metals market
May 2015 – UBS wins immunity from criminal fraud charges in a Justice Department (US) precious metals investigation
May 2015 – Barclays fined £26m by FCA (UK) for systems and controls weaknesses that allowed a trader to attempt to profit at a customer’s expense by influence the 3pm gold fixing on June 28, 2012
September 2015 – COMCO (Switzerland) opens investigation against UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui into possible price fixing deals in respect of bid/ask spread
This is by no means an exhaustive list but note that after all that the only fine levied was a paltry £26 million on Barclays and not one successful manipulation lawsuit that I am aware of.
I doubt the COMCO investigation will find much, and it is a pretty limp claim – they did not mention actual manipulation of the price up or down, just the spread between buy and sell prices. Academic Brian Lucey found a chart of historical gold market spreads below (see his blog post for more details).
Note that if you convert this dollar spread into a percentage of the spot price it has, by my rough calculations, declined 50% from 0.12% to 0.06%. Decreasing spreads reduces a bullion bank’s profit and increases the attractiveness of gold to investors by reducing their trading costs – not sure how that is anti-competitive. While I guess one could still fine banks for conspiring to reduce costs, it is hardly the sort of manipulation smoking gun people have been looking for.
While there has been a lack of success in prosecuting bullion banks for manipulating gold and silver markets, I think Ross Norman is being a little too confident telling CNBC that “‘It is a good, clean, efficient market,’ … adding that certain banks have been investigated ‘dozens of times’ and ‘nothing untoward has been found’.”
The fact is that many of the major banks have been fined for manipulation of other markets and thus it would seem given the corporate culture these investigations have revealed that the odd are against their precious metals desks being 100% clean. Nevertheless, apart from the single Barclays case, nothing untoward has indeed been found.
I suppose the cynics would retort that maybe precious metals dealers are just a lot smarter than their LIBOR and FX mates, or that central banks don’t want regulators delving too deeply into how these markets work. It seems, frustratingly, that it is going to be a few more years before these cases work their way through the system and we get a definitive answer, one way or the other.