gold manipulation

Déjà Vu?: EU Regulators Probe Gold, Silver Manipulation

August 27th, 2015 by

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After a series of precious metals manipulation scandals with the globe’s biggest banks, and the subsequent reshuffle of how the century-old London fixes are conducted, the monster of manipulating markets was supposed to be behind us (at least for the precious metals). The launching of a new probe by regulators in the European Union shatters this notion of such manipulation being a thing of the past: the world’s most powerful banks are once again being investigated for anti-competitive behavior in spot trading of the precious metals.

Although sources have stressed that the probe remains in its preliminary stages, and may not necessarily result in any punishment (or even any settlements) for the banks being investigated, the story would appear to have some serious legs. The European Union has been long in gathering information about the potential scandal, formally requesting certain information from the European Commission earlier this spring. The fact that it is only becoming news for the general public now, nearly 5 months after they began compiling pertientn data, likely indicates that the European watchdogs have something substantial on their hands. It certainly could swing back the other way, of course, but it’s a dubious assumption that the EU and EC would decide to hold back so long on making its intentions public if they hadn’t come across details that give the accusations some teeth.

Familiar Culprits

The lineup of potential violators that are being scrutinized by EU regulators is unsurprising given the results of past market manipulation scandals. Named among the 10 or so banks being investigated are plenty of the “who’s who” in the upper echelon of global banking: JPMorgan Chase, Deutsche Bank, and Barclays have been named directly, though EU regulators could expand its probe to include other major institutions.

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Like most cases involving rigging in the financial markets, the regulators walk the fine line between holding banks accountable for unethical and anti-competitive behavior by traders and brokers while not crushing these giant institutions so hard that their ability to make markets is restricted, or their credibility is irrevocably compromised. Many observers, however, feel that whatever penalties and erosion of confidence the banks suffer should be their fate (no matter how dire, such as leading to a fracturing into small banks) for potentially preventing the free markets from functioning normally.

Whistle-blowers

Swiss-based UBS and Britain’s HSBC are not believed to be part of the pending case, as both banks have actually blown the whistle on what it knew about past instances of market manipulation. For instance, by cooperating with the regulatory authorities, UBS helped antitrust watchdogs unravel the aspects of the Libor rigging case that involved the Japanese yen; this helped UBS avoid multi-billion-dollar fines with immunity in the matter, and may be the case again in the metals manipulation. Barclays has also provided authorities like the U.S. Department of Justice with information on other scandals, and may also receive immunity in the current case.

Influence on Precious Metal Prices

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The probe is looking into how these banks’ precious metals divisions acted in daily spot trading. It may uncover that there has been irregular price action that was not the result of simple profit-taking or consolidation after recent rallies for the PMs. Over the last two years, we’ve seen plenty of surges for the metals (especially gold and silver, but platinum, as well) seemingly snuffed out just as they began. It’s not a stretch for one to wonder if someone in the markets could disproportionately benefit from such stubborn reversals; various market watchers have commented on massive selling moves that must have occurred to stop past price rallies in their tracks and concluded that only a large institution could have the ammunition to affect such a trend.