For many years most of the perennially bullish precious metals commentators, led in terms of continuing vehemency on the matter by the Gold Anti Trust Action Committee (GATA), have been claiming that precious metals prices are being heavily manipulated by the big commercial banks in collusion with the U.S. Fed and other central banks.
And they cite as evidence various documentation, mostly quite old, obtained under freedom of information requests, together with some seemingly very strange volume and price movements on the COMEX markets at potentially key inflection points for precious metals prices, as well as the huge short positions held in all four major precious metals by a small group of major banks in particular.
It has always been the gold bulls’ gripe that the evidence they have come up with has been totally ignored by the mainstream media, but is this all changing?
In a key article published on Monday this week, perhaps arguably the most prestigious globsl mainstream financial newspaper of all, the Wall Street Journal, reported that at least 10 major global banks are being investigated for precious metals market rigging by the U.S. authorities.
The paper notes specifically that it has received reliable information that prosecutors in the Justice Department’s antitrust division are scrutinizing the benchmark price-setting process for gold, silver, platinum and palladium in London, while the Commodity Futures Trading Commission has opened a civil investigation, presumably into activities on the major commodities markets.
The newspaper reports that the mega banks under investigation include HSBC from the UK, which confirmed as much in the bank’s latest annual report also issued on Monday, JP Morgan Chase and Goldman Sachs from the U.S., Bank of Nova Scotia from Canada, Barclays and Standard Bank from the UK, Credit Suisse and UBS from Switzerland and Société Générale from France.
It seems likely that others may be drawn into the investigations as well.
While some of the investigations revolve around the rather archaic London Gold Fixing system, which is being replaced from next month by a new electronic process, it is worth pointing out that a recent investigation into this by the U.K. and German authorities found no evidence of wrongdoing.
There does seem to be a fair amount of circumstantial evidence that there is at least a degree of price rigging on the major commodity markets by the big money.
This is both in terms of the short positions held, and the need to protect them, and also in the futures markets, particularly for gold and silver, where enormous paper trades are put in place which would seem to have no other purpose than an attempt to influence physical pricing.
However the scope and focus of any official enquiry may be key in whether these specifics are duly investigated or not. Some previous CFTC investigations appear to have fallen short in this respect (the manipulation theorists again suspect collusion) and there’s no guarantee that any new investigation will be any different. But at least the possibility that the big money managers (the mega banks) might actually try to manipulate markets to their advantage has at last reached the attention of the mainstream media. It’s a start!
This is an excerpt from the Wall Street Journal:
U.S. officials are investigating at least 10 major banks for possible rigging of precious-metals markets, even though European regulators dropped a similar probe after finding no evidence of wrongdoing, according to people close to the inquiries.
Prosecutors in the Justice Department’s antitrust division are scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the Commodity Futures Trading Commission has opened a civil investigation, these people said. The agencies have made initial requests for information, including a subpoena from the CFTC to HSBC Holdings PLC related to precious-metals trading, the bank said in its annual report Monday.
HSBC also said the Justice Department sought documents related to the antitrust investigation in November. The two probes “are at an early stage,” the bank added, saying it is cooperating with U.S. regulators.
Also under scrutiny are Bank of Nova Scotia , Barclays PLC, Credit Suisse Group AG , Deutsche Bank AG , Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Société Générale SA, Standard Bank Group Ltd. and UBS AG , according to one of the people close to the investigation.
Bank representatives declined to comment or couldn’t be immediately reached. A CFTC spokesman declined to comment, as did a spokeswoman for the Justice Department.
The precious-metals probes are the latest example of regulatory scrutiny into how the world’s biggest financial institutions influence widely used benchmarks. Until last year, prices for gold, silver, platinum and palladium were set using a decades-old practice of once- or twice-a-day conference calls between a small group of banks. The process for setting each of the price “fixes” has since been overhauled.
Benchmarks for the four precious metals affect jewelry prices and financial products such as exchange-traded funds. U.S. commercial banks regulated by the Office of the Comptroller of the Currency had $115.1 billion of precious metals-related contracts outstanding as of Sept. 30.
Previously launched investigations of the interest-rate and foreign-currency markets have led to billions of dollars in settlements from major financial firms. Related probes are continuing in the U.S. and Europe, with additional cases against firms and individuals by the Justice Department expected in the coming months, according to people familiar with the matter.
In the interest-rate investigations, banks often reached settlements with U.S. and U.K. regulators, which made similar allegations of collusion in the rate-setting process. In contrast, the U.K. Financial Conduct Authority and German financial watchdog BaFin reviewed the precious-metals benchmarks but closed their inquiries without finding evidence of wrongdoing, according to people familiar with those probes.
Robert Hockett, a law professor at Cornell University, said it is “not particularly surprising” that the Justice Department is plowing ahead despite the decision by European regulators. Recent scrutiny of big banks’ operations in the physical commodities markets and criticism of the Justice Department’s financial-crisis track record make it “quite understandable” that the agency would investigate allegations of precious metals price-rigging.
Last year, the FCA fined Barclays £26 million ($40.2 million) for lax controls after one of its traders allegedly manipulated the gold fix at the expense of a client.
The bank said at the time that it regretted the situation that led to the settlement and has enhanced its controls. A Barclays spokesman declined further comment.
Swiss regulator Finma settled last year allegations of foreign-currency manipulation with UBS. The regulator said it found “serious misconduct” among precious-metals traders at UBS, including “front running,” or trading ahead of, the silver-fix orders of one client. A spokeswoman for UBS, which said at the time that it “instituted significant cultural and compliance changes,” declined further comment.
Some of the banks under scrutiny by the regulators are also fighting potential class-action lawsuits filed by investors, traders and other plaintiffs in a federal court in Manhattan.
More than 25 lawsuits have been filed against Barclays, Deutsche, HSBC, Bank of Nova Scotia and Société Générale over their alleged role in setting the gold fix. The plaintiffs are seeking damages for losses suffered due to the alleged manipulation of the price of the metal and gold derivatives. Law firm Berger & Montague, the court-appointed co-lead counsel for the proposed class-action suits, said the gold fix affected trillions of dollars worth of gold and related financial contracts.
Jewelry company Modern Settings LLC last year sued the firms that used to set the platinum and palladium fixes. The proposed class-action suit seeks unspecified damages from Goldman, HSBC, Standard Bank and BASF Metals Ltd, a unit of chemical giant BASF SE, for losses suffered from their alleged “nearly eight-year unlawful conspiracy to manipulate and rig” the metals benchmarks.
The banks and BASF are fighting the lawsuits.
Meanwhile, the CFTC and Justice Department are pushing ahead with an investigation into another interest-rate benchmark, according to people familiar with the probe. Investigators are scrutinizing whether bank traders or brokers were involved in the potential manipulation of the ISDAfix, a measure used widely in areas such as setting payout rates on pension funds and determining the cost of real-estate loans.
Representatives of the agencies declined to comment.
The global gold markets were subdued on Monday as volumes were low mainly on account of the short trading day in the U.S. markets due to Presidents Day. Gold fell last week, but managed to bounce off their weekly lows. After slipping briefly below $1220 an ounce on Thursday, the price recovered later in the day and edged slightly higher on Friday to close out the week at $1227.90 per ounce.
Although a ceasefire between Ukraine’s army and pro-Russian rebels came into effect from 22:00 GMT Saturday, there have been several accounts of fresh gunfire. Associated Press journalists traveling toward Debaltseve from the north on Sunday morning heard explosions from about 25 kilometers (15 miles) away. A Ukrainian officer, whose unit’s tanks were parked by the side of the road, said it was the sound of rebels firing. This could not be confirmed independently.
Donetsk, the main large city under separatist control, was quiet on Sunday morning with no shelling from government forces, the Donetsk News Agency, a separatist mouthpiece, reported, citing the city administration.
Despite the fact that Ukraine is one of the most corrupt countries in the world, the International Monetary Fund (IMF) announced a new $17.5 billion lifeline for Ukraine, which would bring the total bailout package to $40 billion. The new sum would be a four-year program.
The IMF chief, Christine Lagarde will propose the $17.5 billion expansion program to the IMF by the end of the month.
“The program is not yet approved by the governing council. I hope to offer it for approval by the end of February,” she said Thursday.
“This new four-year arrangement would support immediate economic stabilization in Ukraine as well as a set of bold policy reforms aimed at restoring robust growth over the medium term and improving living standards for the Ukrainian people,” Lagarde said in a statement.
In return Ukraine will have to present a “program of deep economic reforms,” which includes the whole economy and a plan to transform, Naftogaz, Ukraine’s state oil and gas company.
“The sum includes funds from the IMF and the EU, and also bilateral and multilateral loans.”
Earlier this month, the US promised Ukraine as much as $2 billion in loan guarantees, while the EU said it would disburse €1.8 billion ($2.1 billion).
Corruption is a widespread and a growing problem in Ukrainian society. In 2014’s Transparency International Perceptions Index, Ukraine was ranked 142nd out of the 175 countries investigated (tied with Uganda and Comoros).Back in 2007 Ukraine had taken 118th place (179 countries investigated that year). Ernst & Young (in 2012) put Ukraine among the three most corrupted nations of the world together with Colombia and Brazil.
It remains a mystery to me why the major financial organisations such as the World Bank and the IMF as well as major governments are so willing to squander billions on useless loans to countries that are rife with corruption. There have been countless cases of this throughout Africa where only a small percentage of the money loaned was ever spent on the intended causes, while politicians in the respective countries suddenly became very wealthy for doing nothing. I wonder why? It seems to me that as long as you are a politician, you can lie, cheat and steal.
It is evident that governments have no problems squandering billions of dollars or lending tax payers money to corrupt governments, yet, at the same time attack hard working individuals who try to protect their own wealth. It is a disgrace! These politicians should be held accountable for these massive losses.
Talks between Greece and Eurozone finance ministers over the country’s debt crisis broke down on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as “unacceptable”.
Failure to reach any agreement has increased doubts about Greece’s future in the single currency area after a new leftist-led government vowed to scrap the 240 billion euro ($272.4 billion) bailout, reverse austerity policies and end cooperation with EU/IMF inspectors.
Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said Athens had until Friday to request an extension, otherwise the bailout would expire at the end of the month. The Greek state and its banks would then face a looming cash crunch.
The European Central Bank will decide on Wednesday whether to maintain emergency lending to Greek banks that are bleeding deposits at an estimated rate of 2 billion euros ($2.27 billion) a week. The state faces some heavy loan repayments in March.
German Finance Minister Wolfgang Schaeuble said before the talks that Greece had lived beyond its means for a long time and there was no appetite in Europe for giving it any more money without guarantees it was getting its finances in order.
Greece’s current bailout program ends after Feb. 28, and without a new one, Greece faces bankruptcy — and a possible exit from the Eurozone, a development that would devastate Greece’s economy, at least in the short-term, and throw global financial markets into turmoil. But, whichever way you look at the situation, it is apparent that the current programme has not been successful.
According to several bullion dealers, demand for physical gold in Europe increased as concerns over the Eurozone’s outlook sparked by central bank action and anti-bailout party Syriza’s victory in Greek elections drove consumers to load up on bullion.
After the Swiss National Bank cut the franc’s peg to the euro, the ECB announced its new stimulus program which has been followed by a similar programme by Denmark and Sweden.
Only last week, the Swedish Riksbank, became the latest central bank to enter the currency wars when it announced that it is reducing its key rate from 0% to -0.10%. It will also begin its’ own bond buying program, buying 10 billion kronor of government bonds.
Sweden is the sixteenth country to cut rates this year. It claims to have made the move to combat deflation and is aiming for an inflation rate of 2%. It is widely believed that it is devaluing its currency to boost exports.
Denmark cut its key rate to -0.75 on February 5th matching the Swiss. Denmark is trying to maintain its peg to the euro in order to protect its own export industry, an effort which cost it 106.3 billion krone in January.
Denmark has lowered its rates four times this year to try to stem excessive demand for the krone following the SNB’s capitulation last month which came about due to fears that defending the peg to the euro would bankrupt the country following the initiation of the ECB’s QE program.
Sweden’s move is likely to put pressure on Norway to follow suit to protect its exports given the large amount of trade among the Scandinavian countries. The Bank of England is also considering a rate cut.
These events as well as the results of the elections in Greece prompted a 6.7% drop in the euro versus the dollar, its worst monthly performance since mid-2012, and sent investors scurrying into other assets, including gold.
The race to the bottom continues unabated in the currency wars. And, no matter where you live, if you are stupid enough to believe the rhetoric being spewed out by politicians then you deserve to suffer the consequences.
Unfortunately, you have to have a financial insurance policy that will save you from the actions of the current financial and political elite. While there are lots of great options available, owning physical gold and especially silver should be an essential part of this policy.
Technical picture
The correction from $1300/oz. seems to have found support at around $1220/oz. I expect to see a resumption in the upward trend.
Central banks are in trouble. The belief that a committee of academics can manage an economy is wilting as more and more question their role. The trillion euro quantitative easing and absurdly low and falling interest rates smack of desperate times and desperation.
The vast injection of make-believe money will act as a great boost to the make-believe economy noted in official statistics. The one-per cent will certainly add to their paper wealth. It will not help the real economy though – the one where businesses employ people to produce goods in the hope of making a profit. Quite the opposite.
According to ECB president Mario Draghi, the aim of the Euro QE is to create yearly price rises of 2% – central bank Nirvana. More money equals higher prices – just like what wasn’t achieved in the US and Japan.
It is not that individual central bankers are incompetent; it is that the very idea of central planning any aspect of an economy, particularly money supply and interest rates, is deeply flawed. Laissez faire.
Since 1913, the Federal Reserve Bank of the US has held sway over the world’s money, not only practically, but also intellectually. Its pronouncements have held the world’s bankers and media in thrall.
It has been broadly understood and accepted that it is through their central banks that governments manage ‘their’ economies. It is the principal source of the legitimacy of today’s hyper-regulatory governments. The simultaneous dawn of central banking and total control governments was no coincidence.
What happens when it becomes obvious that central planning of the whole sphere of money can be no more successful than the central planning of any other aspect of the marketplace?
What happens when the real problem, which is the debt, becomes too obvious to ignore and when people realise who created the debt?
What happens when the debt money system that the central banks birthed and guided and that now envelops the world collapses?Who can really be so giddily optimistic as to imagine that the answer will be just a depression?
It seems reasonable to surmise that not only central banks, but also the whole concept of governments managing economies will be discredited to a degree that is difficult to fathom right now. Oh, and Gold will be circulating again.
According to data from the World Gold Council (WGC), India reclaimed the title as the top gold consuming nation from China in 2014, despite demand being down compared to the previous year.
In its latest report, the WGC said that total gold demand in India hit 842.7 tonnes, down 14% from 2013. At the same time gold demand from mainland China came in at 813.6 tonnes, down 38% from unprecedented demand seen in 2013.
The council’s data shows that demand from Greater China, which includes Hong Kong and Taiwan, came in at 867.5 tonnes, a decline of 37% from the previous year.
Juan Carlos Artigas, director of investment research at the WGC, said that it is important to look at last year’s demand in a broader context than just a year-over-year change. A significant price drop in 2013 unleashed extraordinary demand from Asia, which was not expected to be repeated in 2014.
He added that despite the decline in gold demand, India and China play a very important role in the gold market. According to the council’s research, demand from those two countries accounted for more 54% of total global demand last year. That is an increase from 33% of total global demand recorded in 2005.
“The bottom line is that both China and India represent significant growth for the gold market. They are extremely important for the gold market,” said Artigas in an interview with Kitco News.
Artigas added the Indian gold market continued to face difficult hurdles in 2014 as the government maintained import restriction and high duty costs. But despite these challenges, jewelry demand in the country hit a record high of 662.1 tones.
There are expectations that demand will pick up even more in 2015 as the Indian government removed 80:20 rule import rule in November and there is a move to lower tariffs on gold.
“The outlook for India is for another year of strong jewelry demand in 2015, on the basis that the government does not impose further market-distorting policies and price volatility does not unsettle the market,” he said.
Although demand was down, the WGC said that 2014 was an important year for Chinese and Asian markets, as they started to mature and develop new infrastructure.
“Innovators in Turkey, India, China and South East Asia are developing gold products, services and platforms across the entire supply chain to boost market development. Consumer choice is expanding and the supply chain is becoming more efficient and more transparent,” the report said.
The council said that the biggest hurdle China faced in 2014 was the fact that demand was so strong the previous year. The buying frenzy in 2013 temporarily exhausted demand, the report said. However, if price pick up they would expect to see a reemergence of investor demand.
Gold has experienced some remarkable and unexpected turn of events so far this year and year-to-date it is significantly higher in four of the seven top currencies (the euro, British pound, Australian and Canadian dollars), and up respectably in two others (U.S. dollar and Japanese yen).
Since its recent lows in November 2014, gold has risen by up to 13% against the USD, 30% against the euro, 18% against the pound, and 32% against the yen. And, the rise against weaker emerging market currencies has been even more significant.
Gold as a hedge
The significant gains in gold prices demonstrate the value of gold as a hedge, not just against inflation, but also against currency devaluation and systemic financial and economic risks.
Since the beginning of the year, there have been a series of events that caused investors to reconsider their position on gold as a safe-haven investment. In particular I am referring to the action taken by the Swiss National Bank, as well as the action taken by the European Central Bank. But, in addition, banks around the world have cut rates to ridiculously low levels as the current currency war intensifies. Also, collapsing oil prices have money managers looking to other commodities such as precious metals.
The surprise move by the Swiss National Bank (SNB) which caused total havoc in the global currency markets was the catalyst to send the price of the yellow metal through $1280 an ounce in its biggest weekly gain in 17 months as investors look to gold as a safe haven in the face of all the recent volatility.
On January 15th, the SNB shook the European and worldwide banking systems by abandoning its long-held cap on its currency.
The move sent the euro and dollar dropping against the Swiss franc, and boosted demand for gold as a safe haven.
Since September 6, 2011 the SNB has fulfilled its policy of maintaining currency values at a level of no more than 1.20 euro per Swiss franc.
The move sent the franc nearly 30% higher against the euro in chaotic trading. Coming a week before the European Central Bank is expected to unveil a bond-buying program to counter deflationary pressures, it fed speculation that this quantitative easing (QE) scheme will be so big that the SNB would have struggled to defend the cap.
SNB Chairman Thomas Jordan denied that the move amounted to a “panic reaction”, saying the cap had been scrapped because it was unsustainable.
“If you decide to exit such a policy, you have to take the markets by surprise,” Jordan said.
As it removed the upper limit on the currency, the SNB sought to discourage new flows into Swiss francs by pushing down its interest rate on some cash deposits held at the central bank by commercial banks and other financial institutions.
After taking the rate into negative territory last month for the first time since the 1970s, it cut another 0.5% to -0.755%.
“The values we currently see (on currency markets) point to a massive overvaluation of the franc,” Jordan said. “They should come back down to more sustainable levels. Markets tend to overreact when confronted with such a surprise.”
Following the announcement by the SNB the Swiss franc gained around 15% against the U.S. dollar, the Australian dollar and other currencies. Big drops were also experienced on the Swiss Stock Market, with the Swiss Market trading down well over 11%. Swiss banks and ATMs temporarily halted all transactions in euros to prevent wholesale flight from the rapidly falling euro. PostFinance, one of Switzerland’s biggest banks for retail clients, temporarily stopped distributing euro bills.
Soon afterwards, the European Central Bank (ECB) announced its quantitative easy programme, by committing to purchase 60 billion euros of government debt and other assets every month until September of 2016 or until inflation gets closer to 2%.
European QE
Investors’ desire for precious metals increased after the ECB’s $1.3 trillion pledge drove gold to a five-month high and silver to the brink of a bull market.
At a time when the price of almost every other commodity is sinking, silver and gold are having their best start to a year in more than three decades. The ECB’s stimulus program sent the euro to an 11-year low against the dollar, pushed government bond yields lower and raised the appeal of alternatives to currencies that are being revalued.
More than $12 trillion in new money has been created since the global financial crisis by the major central banks in a broad attempt to bolster hobbled banking systems, ease debt service and revive a damaged global economy. However, it seems that the only real benefit of this money printing has been to make the financial elite richer at the expense of the middle class and the poor.
Last month, the Indian Reserve Bank Governor Raghuram Rajan cut his key interest rate for the first time in 20 months.
Last week, in another surprise move the Bank of Canada (BoC) cut its overnight rate to 0.75% from 1% in January. Policymakers saw downward pressure on headline inflation from lower energy prices while upward pressure could come from the depreciation of Canadian dollar.
The BoC also revised lower its growth and inflation outlook, suggesting further easing cannot be ruled out in coming months.
Singapore also unexpectedly eased monetary policy, sending the currency to the weakest since 2010 against the U.S. dollar as the country joined global central banks in shoring up growth amid dwindling inflation.
The move came after an unscheduled rate cut by India in January and was Singapore’s first unplanned monetary policy change since one in the aftermath of the Sept. 11, 2001 terrorist attacks in the U.S. The central bank last eased policy in October 2011.
Singapore becomes at least the ninth nation to ease policy this month, as officials from Europe to Canada and India take action to contend with escalating disinflation and faltering global growth.
Last week, the Danish Central Bank cut the deposit rate from -0.2% to -0.35%, and yet again, for the second time in one week, cut rates from -0.35% to -0.5%!
And, on Friday, the Central Bank of Russia cut its key interest rate to 15%, just one month after the surprised rate hike. In a statement the bank stated that the recent rate hike from 10.5% to 17.0% “resulted in stabilization of inflation and depreciation expectations to the extent the Bank of Russia expected.” And, the surge in inflation driven by depreciation of the ruble was “time-limited” and would be contained by a “decrease in economic activity”.
Earlier on Tuesday, the Reserve Bank of Australia cut interest rates to a record low, sending the Australian dollar to a six-year low against the U.S. dollar. And, it fell more than 2% against the yen.
Australia’s central bank cut its cash rate by a quarter point to 2.25% in order to spur a sluggish economy and keep downward pressure on its currency.
Meanwhile, the Chinese yuan became one of the top five payment currencies in the world in November. According to the latest data from SWIFT, one of the largest international interbank transaction companies, the yuan jumped from seventh to fifth place, overtaking the Australian and Canadian dollars. With the yuan accounting for 2.17% of global payments, it is not far behind the Japanese yen, which has a 2.69% share.
Central banks around the world bought a net 461 tons of gold in 2014 – 13% higher than the previous year and the second-highest level since the collapse of the gold standard in 1971 — as they continued to diversify their currency reserves following the financial crisis. They have added 1,800 tons to their holdings in the past six years.
Russia accounted for about one-third of central banks’ gold purchases last year as the country spent more on the metal than at any time since the break-up of the Soviet Union amid escalating tensions with the west and a collapse in the value of the ruble.
Russia’s central bank purchased 152 tons of gold worth $6.1 billion at today’s prices — an increase of 123% compared with the previous year — in the first 11 months of 2014, according to GFMS estimates.
India overtook China as the world’s biggest gold consumer in 2014 as global physical demand fell, an industry report showed on Thursday, forecasting that prices that have declined for the last two years would bottom out this year.
Chinese gold demand slid by more than a third last year to a four-year low of 866 tons, while the country’s scrap gold supply rose 21% to an unprecedented 182 tons, the report by GFMS analysts at Thomson Reuters showed.
Slower economic growth and a crackdown on corruption helped knock Chinese jewellery demand to 608 tons, 33% below the previous year’s “extraordinary” levels, it said. Physical bar demand fell 53% to 171 tons, a five-year low.
“We do expect an increase in Chinese demand this year. However, without a dramatic course of events we would not expect it to come close to matching the level in 2013,” GFMS analyst Ross Strachan said.
Indian jewellery demand rose 14% last year to a record 690 tons, putting it back ahead of China as the world’s number one jewellery manufacturer.
The drop in buying in China helped drive a 19% fall in global physical gold demand, with all areas declining except central bank buying, the report said. World jewellery demand fell 11%.
Nevertheless, so far this year the price gold has risen against all major currencies, including the US dollar, with the price above 200-day and 50-day moving averages in bullish formation. To date from its lows gold has risen by up to 13% against the USD, 18% against the pound, 30% against the euro, and 32% against the yen. And, the rise against weaker emerging market currencies has been correspondingly greater.
The rising gold price is an early warning of future monetary and currency turmoil. And, as the major central banks around the world continue to print enormous amounts of money, an increase in the demand for physical gold can be expected.
Technical picture
gold_price_2_february_2015
Even though the price of gold remains above the 50 day and 200 day MA, a minor correction is possible. However, I believe that the upward momentum will continue.