Gold Manipulation? 'No Sign, Case Closed,' Says Germany's BaFin
Wednesday, 1/28/2015 11:54
But regulatory impact widens, replacing London Fixes & ending benchmark "forwards" this Friday...
GERMANY's chief banking regulator says the issue of "gold manipulation" is now closed after his staff "found no signs" of bank traders artificially inflating or depressing prices.
Speaking to the
Handelsblatt newspaper, Raimund Röseler – the most senior supervisor of Germany's banking sector at regulator BaFin – said investigation of currency and interest-rate benchmarks still continues.
But for gold, "We found no signs of manipulation," says Röseler. "Unless we receive evidence showing it has been manipulated, then the matter of gold is now closed for us."
US regulator the Commodity Futures Trading Commission (CFTC) has twice investigated and
dismissed allegations of manipulation in the silver market, first in 2004 and again in 2013 after a 5-year study.
UK regulator the Financial Conduct Authority (FCA) last year fined Barclays Bank £26 million ($40m) for "failing to manage conflicts of interest" surrounding the London Gold Fix benchmark. But while Barclays' internal systems and controls were "inadequate" between 2004 and 2013, the FCA
identified only one case of misconduct by one Barclays trader during that time – a trader immediately suspended as Barclays alerted the regulator within a day of the incident.
Germany's BaFin began investigating the bullion market in January 2014 after Deutsche Bank – then a fellow member with Barclays of the daily London Gold Fix – suspended some of its currency traders over allegations of misconduct in foreign exchange prices.
The next day, "Accusations of manipulation [are also] serious in gold and silver," said Dr.Elke König, BaFin's president, in a speech in Frankfurt.
With no prior warning, Deutsche Bank announced the very
next morning it was quitting the London gold and silver fixes, helping put in train a series of events which – together with the FCA banning the former Barclays trader, Daniel Plunkett, from ever working in financial services again – has since led to the demise of those century-old markets.
Three-quarters of Fixing customers, when surveyed by trade body the London Bullion Market Association last year, said the existing price-discovery process was "sufficient". Asked to score how useful they found the daily dealing and price mechanism for their businesses, respondents gave an average 8 out of 10 for gold
and 7.5 for silver.
But with regulatory pressure for "transparent" benchmarks growing, the LBMA requested proposals to replace the Fixes, presented them to its members, consulted with the largest dealers and broking banks as well as UK regulator the FCA, and then selected new "electronic auctions".
The new silver market process, launched in August, is adminstered by US-based derivatives exchange the CME. Starting some time this winter, gold's new daily price auction will be administered by US-based derivatives exchange and benchmark specialists ICE.
Both processes, the FCA said last December,
"will" from 1 April 2015 be regulated under the same strict criminal laws set to govern interbank interest rate and currency market benchmarks.
The consultation period on such a move does not end until this weekend. The decision to legislate then rests with the UK Treasury.
Continuing BaFin's investigation of interest-rate and currency market misconduct, "We don't have the impression that there is a system behind the manipulations," Röseler says in his
Handelsblatt interview. "It was simply a matter of greed on the part of individuals or groups."
Friday this week will meantime see the last ever GOFO benchmark rate for pricing forward contracts in the London gold market – heart of the world's physical bullion trade – after the banks submitting their rates decided to quit the process.
Twelve companies, the LBMA reports, last week succeeded in "tearing up" 99% of their outstanding gold interest-rate swap contracts with each other, using the
TriOptima service provided by global broking firm ICAP to "eliminate their outstanding portfolios before the end of the [GOFO] benchmark" needed to price them.
Gold forwards and interest-rate swaps have primarily been used by mining companies to raise finance from London bullion banks.
The Shanghai Gold Exchange – the government-approved route for bullion to reach wholesalers in China, now the world's No.1 miner, consumer and importer of gold – is planning to develop bullion-banking style products for both the domestic and international markets, chairman Xu Luode said in a speech last June.
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