For many years, those who were speaking loudly about a possibility of gold and silver price manipulations were branded tin-foil conspiracy theory seekers.
After the CFTC 5-year investigation was concluded its verdict just cemented the view that there was no manipulation what so ever. You wouldn’t expect any other outcome if the head of the agency was a former Goldman employee, would you?
There was plenty of evidence of machinations. Finally, a group of investors stepped forward with a suit against DB. They alleged that with the help of the London Fix, options and futures trade price of metals were rigged.
After few months of investigation, DB agreed to pay the fine and what is more important, to cooperate with authorities and share documents proving other banks’ role in the scam. We are talking about HSBC (of course) and Nova Scotia. It is nearly sure that we will hear about other banks soon. Interestingly enough, HSBC while manipulating the price, used cheaper Silver to buy physical metal from polish KGHM.
Many details are unknown and that’s evident in media reporting different things. What we know for sure is the fact that precious metals market rigging is officially a reality.
Unveiling such a scandal will be very healthy for the market in the long run but in my opinion, there won’t be any sudden jumps in price. A Huge majority of cases against banks ends being settled with penalties paid by financial institutions – de facto shareholders themselves. For the real change to come we would need to put the heads of banks in jail. As long as banks get just slap on the wrist (money penalty) there will not be any real change in their behaviour.
More lawsuits against DB
New lawsuits were on their way the moment DB admitted to manipulation. DB, HSBC, Nova Scotia and others are going to be taken to court by class actions of their investors.
Co-owner of Tanzanian Royalty Exploration – Jim Sinclair – is preparing a class action and many of those who lost money are going to join such renowned name. Both mining companies and investors lost money when risking their money in metals, derivative instruments and mining companies’ equities during 2011 – 2015 bull market.
If massive actions against banks were to follow Sinclair’s move maybe we are going to get to the bottom of this and end price rigging once and for all. Chances are low and the trial itself will definitely take few years.
Arbitrage and SGE
Few days ago the biggest gold market, the Shanghai Gold Exchange started publishing their own golden fix. London’s market competition. China is right now the biggest producer and consumer of gold in the world on top of storing probably the biggest reserves on the planet.
These circumstances are the definition of Chinese drive to exercise bigger control over the price of bullion. What makes SGE different from London Fix or Comex is the fact that China actually deals in physical metal, not in contracts where gold is only written with ink.
In my opinion, investors are going to acknowledge this difference and China’s price will be higher. This will make arbitrage possible. Investors may buy a cheaper contract for gold in the US, require delivery of physical collateral and then sell it for more in China. As a result, soon enough there will be no gold in CME and contracts for gold and silver will be suspended. Price control will be gradually given to Asian hands: ‘one who has gold makes the rules’.
This manipulation of price was not about profit. Yes, when the price of metal increased, Commercials increased their short position and then initiated losses. When you know the stop loss levels and enjoy infinite money from central banks it isn’t that hard.
I want you to understand the most important part of this. Media by omission is not telling about one more key player – the Bank for International Settlements which coordinates every central bank in the world.
Since 1971, central banks issued only fiat money (‘IOU’ equivalent). This sort of currency could only survive through a natural devaluation. The society wouldn’t be happy about it but to make this process acceptable all major currencies have been destroyed simultaneously. Those who are clever used barometer to understand how their currency is decaying – the price of gold.
In 2008, the system of fiat, paper money collapsed under its weight making gold price harder to manipulate – we see that confirmed in the DB case. I am curious how investigation and penalties will affect the condition of the German giant.