While the FT promptly retracted an article on precisely the topic of gold manipulation from earlier this week (recorded for posterity here), Bloomberg appears to not have had the same “editorial” concerns and pressures, and today released an article once again slamming the final conspiracy theory that while every other asset class is manipulated, gold is in a pristine class of its own, untouched by close-banging, price fixing traders or central bankers, and reports that “the London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.“
Of course, over the past 5 years we have reported time and again how official gold manipulation started in earnest some time in the 1960s (who can forget the “reshuffle club”) but we will start with a decade.
Here is what BBG finds:
Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.
“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”
The paper is the first to raise the possibility that the five banks overseeing the century-old rate — Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc and Societe Generale SA — may have been actively working together to manipulate the benchmark. It also adds to pressure on the firms to overhaul the way the rate is calculated. Authorities around the world, already investigating the manipulation of benchmarks from interest rates to foreign exchange, are examining the $20 trillion gold market for signs of wrongdoing.
Tell us something we didn’t already know. Then again, this time may be different, because one of the authors, Abrantes-Metz, advises the European Union and the International Organization of Securities Commissions on financial benchmarks. According to Bloomberg, her 2008 paper “Libor Manipulation?” helped uncover the rigging of the London interbank offered rate, which has led financial firms including Barclays Plc and UBS AG to be fined about $6 billion in total. She is a paid expert witness to lawyers, providing economic analysis for litigation. Metz heads credit policy research at ratings company Moody’s.
By way of background, the history of gold price fixing is well-known and is one of the longest running traditions in banking:
The rate-setting ritual dates back to 1919. Dealers in the early years met in a wood-paneled room in Rothschild’s office in the City of London and raised little Union Jacks to indicate interest. Now the fix is calculated twice a day on telephone conferences at 10:30 a.m. and 3 p.m. London time. The calls usually last 10 minutes, though they can run more than an hour.
So what exactly did this “erudite” authority on manipulation uncover?
Abrantes-Metz and Metz screened intraday trading in the spot gold market from 2001 to 2013 for sudden, unexplained moves that may indicate illegal behavior. From 2004, they observed frequent spikes in spot gold prices during the afternoon call. The moves weren’t replicated during the morning call and hadn’t happened before 2004, they found.
There’s no obvious explanation as to why the patterns began in 2004, why they were more prevalent in the afternoon fixing, and why price moves tended to be downwards, Abrantes-Metz said in a telephone interview this week.
“This is a first attempt to uncover potentially manipulative behavior and the results are concerning,” she said. “It’s down to regulators to establish why there are such striking patterns but banks have the means, motive and opportunity to manipulate the fixing. The results are consistent with the possibility of collusion.”
And the punchline:
Large price moves during the afternoon call were also overwhelmingly in the same direction:
In other news, we may have officially run out of conspiracy theories.