Gold Price Rigging Fears Put Investors On Alert – FT
Monday, 24 February 2014
Gold may post its fourth week of gains as concern of prolonged political unrest in Ukraine raises fears of a sovereign default and contagion. This is adding to safe haven demand for gold – particularly in Eastern Europe and Russia.
A breakthrough peace deal for Ukraine has halted days of violence and may bring sweeping political change, meeting many of the demands of the pro-European opposition. However, there are considerable financial and economic challenges facing Ukrainian banks, the Ukrainian pension system and the wider economy. There remains the risk of a default that could lead to contagion.
Bullion for immediate delivery traded at $1,325.10 an ounce at 2:23 p.m. in Singapore from $1,324.28 on February 21, when prices capped a third weekly gain.
The Financial Times reports this morning that global gold prices may have been manipulated on 50% of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.
The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price. Prices are set twice a day by Deutsche Bank, HSBC, Barclays, Bank of Nova Scotia, and Societe Generale in a process known as the London gold fixing.
Fideres’ research found the gold price frequently climbs, or falls, once a twice-daily conference call between the five banks begins, peaks or troughs, almost exactly as the call ends, and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behavior.”
Fideres concluded that this “is indicative of panel banks’ pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders.”
“The behavior of the gold price is very suspicious in 50% of cases. This is not something you would expect to see if you take into account normal market factors,” said Alberto Thomas, a partner at Fideres.
Pension funds, hedge funds, commodity trading advisers and futures traders are most likely to have suffered losses as a result, according to Mr Thomas. He said that many of these groups were “definitely ready” to file lawsuits.
Daniel Brockett, a partner at law firm Quinn Emanuel, also said he had spoken to several investors concerned about potential losses.
Matt Johnson, head of distribution at ETF Securities, one of the largest providers of exchange-traded products, said that if gold price collusion is proven, “investors in products with an expiry price based around the fixing could have been badly impacted.”