Gold Manipulation Suspicion Lingers

thenews 2016.12.22 22:06

Deutsche Bank Caves In

Deutsche Bank trader: “u just said u sold on fix.”

Answer UBS trader: “yeah, we smashed it good.”

Deutsche Bank is a defendant in more than 7,000 lawsuits worldwide. In two of them it has recently agreed to settlements and is prepared to pay tens of millions of US dollars in restitution and fines. This includes the settling of lawsuits over gold and silver price manipulation. Associated court proceedings against other financial institutions are still underway.

It has been said that precious metal bars make for good door stops due to their high specific gravity. Perhaps, but as DB has just found out, it also means that stubbing one’s toes on them can be painful [PT].

Apart from Deutsche Bank, several other banks have been sued in New York over manipulation of precious metals prices as well. Due to a lack of direct evidence, the plaintiffs initially presented statistical evidence. Charts that show average intraday price movements have played an important role in this. How did this come about?

Detecting Market Manipulation with Charts of Average Intraday Price Movements

In 2002 I had the idea to create a chart of average intraday price patterns in order to investigate potential gold price manipulation. For this purpose I used the one-minute intraday prices of gold over a time period of five years and calculated an average of these prices over the course of one trading day.

The chart created at the time is depicted below. It shows the average intraday movements in the gold price from August 1998 to May 2002. The horizontal scale shows the time of the day, the vertical scale the average price level.

The chart therefore shows the typical intraday pattern in the gold price over a time period of more than one thousand trading days, based on millions of individual prices. Thus the chart has a high degree of statistical significance.

Gold, average intraday movements, 8/1998 – 5/2002. The gold price typically declined at the time of the PM fixing in London (10:00 am EST).

As can be seen, the gold price typically fell during the first two hours of trading in New York, particularly at the time of the London PM fixing at 10:00 am EST. Such a regularly recurring anomaly at a point in time at which reference prices are determined represents strong circumstantial evidence of price manipulation.

It furnishes almost conclusive proof if other causes such as statistical outliers can be firmly excluded. Apparently a number of market participants deliberately suppressed prices at the time of the fixing, possibly in order to profit from subsequent transactions tied to the reference price.

The chart shown above illustrated for the first time that the gold price was manipulated at the time of the fixing. It was inter alia published on the internet, where it can still be found today, e.g. here: www.gold-eagle.com/article/gold-manipulation-intraday-charts.

Later I conducted similar studies of silver and platinum prices. These also led to the finding that prices were manipulated at the time of the fixing. In 2010 I documented the exciting history of manipulation in precious metals markets in my bestselling book Geheime Goldpolitik (Finanzbuchverlag), which was published in 2013 in English as The Gold Cartel (Palgrave Macmillan).

These studies gained wide recognition in expert circles, but no noteworthy legal or policy consequences ensued. The supervisory authorities were unable to prove that manipulation had taken place.