Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Give Back Friday’s Gains
By: Chris Mullen, Gold Seeker Report

Operation Twist By Another Name and Method?
By: Gary Tanashian

SWOT Analysis: Gold Bounced Back After Attempts to Knock Down Price
By: Frank Holmes

Hyperinflation in Zimbabwe – It’s back, but maybe not for long
By: JP Koning

Gold Versus Bitcoin: The Pro-Gold Argument Takes Shape
By: John Rubino

Inflation and Counterfeit Credit
By: Keith Weiner

Gold's Interesting Day
By: Rick Ackerman

Two Scenarios, One Strategy
By: Gary Savage

Zinc One Files a Technical Report on Scotia Property
By: Zinc One Resources Inc.

Money and Markets Infographic Shows Silver Most Undervalued Asset
By: GoldCore

 
Search

GoldSeek Web

 
Gold in a Fix


 -- Published: Friday, 30 May 2014 | Print  | Disqus 

By: Alasdair Macleod, Head of Research, GoldMoney

Last week the UK’s Financial Conduct Authority fined Barclays for rigging the gold price at a gold fix for the disadvantage of a customer and the benefit of the bank’s book. This news could not come at a worse time for the London Bullion Market and the London Gold Market Fixing Limited, the company directly responsible for the twice-daily fix. It may well lead to the end of the gold fix, the silver fix already being axed in August.

The fix is a process by which the four fixing members match their orders at an agreed price. The London bullion market is over-the-counter without the formal price records of a regulated market. The fix is therefore a needed reference price, and its status and the liquidity that follows have been central to London being the world’s major bullion dealing centre.

There are two problems with the fix. The first is it potentially distorts the market by delaying pre-fix business and bringing post-fix business forward. The second is that customers have to trust the fixing banks, who are also dealing for themselves into the fix. And this is what tripped up Barclays.

Outside the fix it should be reasonably clear to clients whether a bank is operating as principal or agent. During the fix roles can become opaque, and unscrupulous dealers can find ways to game the system. Claims that the Barclays case was an isolated instance may be true, but indications that the FCA is treating this as a one-off and not investigating other banks may be ultimately damaging to the market’s reputation. Then there are the separate circumstances of Deutsche Bank’s resignation of its fixing seats on both gold and silver.

Last December Deutsche Bank was instructed by the German banking regulator, BaFin, to hand over documents in connection with its enquiry into gold and silver price fixing. Four weeks later the bank announced it was resigning its seats on the gold and silver fixes. While it is premature to positively link the resignations with BaFin’s enquiry, the coincidence raises the possibility that banks which have settled with regulators over accusations of fixing LIBOR may have a case to answer in precious metals as well. Interestingly, there are no buyers for Deutsche’s seats, suggesting legal and compliance officers at other bullion banks also have doubts about the fixing process.  

To give this topic further context it should be noted that London has seen some unusual price movements in the past. The table below shows the profits generated by shorting one ounce of gold on the morning fix and buying it back at the afternoon fix every day for the eleven years 2000-2010, covering most of the largest bull market in the LBMA’s history.  

http://news.goldseek.com/2014/30.05.png


This phenomenon was first drawn to public attention a few years ago by an American analyst, Adrian Douglas. In every year this short trade would have been profitable, despite a rise in the gold price from $282.05 to $1405.50 in December 2010, a rise of 400%. This extraordinary price behaviour was confined to London trading hours.

So hard statistics tell us gold has been behaving unusually in London hours for a considerable time. The LBMA is not a regulated market, but derivatives and share prices based on precious metals are, so regulators have a duty to be interested. The FCA should broaden its investigations accordingly, but whether it does or not it is hard to see how the twice-daily gold fix can survive.      

 

By: Alasdair Macleod, Head of Research, GoldMoney


| Digg This Article
 -- Published: Friday, 30 May 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.