Libor scandal whistleblower says gold may have been rigged for a decade

The process by which the price of gold is set could be vulnerable to benchmark manipulation and could have been rigged for up to a decade, according to a leading academic who was among the first to spot the Libor rate rigging.

Professor Rosa Abrantes-Metz of New York University, who is also an advisor to the EU, along with Albert Metz, managing director of Moody’s Investors Services, said in a paper: “The structure of the benchmark is certainly conducive to collusion and manipulation. It is likely that co-operation between participants may be occurring.” 

The participants concerned are five banks. HSBC, Barclays, Deutsche, Société Général and the Bank of Nova Scotia set the price of gold twice a day, at 10.30am and at 3pm, via teleconference.

Last month Deutsche Bank said it would withdraw from the process. The other banks made no comment on the move.

Global regulators have added gold, along with several other precious metals, to a growing list of areas of concern over potential benchmark rigging.

In 2008, Abrantes-Metz published her paper Libor Manipulation? which uncovered the Libor rate rigging scandal.

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Readers' comments (3)

  • The story you mention is deeply flawed - not least because the writers stand to gain personally for making these unsubstantiated allegations. It demonstrates a complete lack of understanding of the fixing process.

    To answer the issues it riases :
    - why are there price spikes during the afternoon fix and not the morning fix ? - answer ; because the
    p.m. fix is when both London and New York are both open and as a buyer or seller you have a greater chance of getting a better price when liquidity is optimal - you would not for example get a good price when market participants are absent - makes sense. Got a big trade ? You trade when most others are available to take the other side of your trade. End of.

    - why are there large price moves during the time of the fixing ? answer : the fix is a price discovery process and as such large buying and selling orders collide here - large moves are therefore to be expected. In fact, the mere fact that it does move confirms some differences in opinion over fair value between the clients dealing in the fix - actually it supports the notion of the integrity of the process.

    - why is the move often down and not up ? answer : the fix is used by official institutions (like central banks) and many major miners who all require an "objective" and published price because they need to more accountable than say a proprietary trader. The spot price for example is neither of objective nor published. Selling by miners in size every day and invariably outweighs any official buying which is typically large but infrequent. Hedging or
    financing for the miners have will often link their financial arrangements to the gold fix.

    - why is the fix done on a private call amongst members ? - answer : it's not private, it is an open call. Clients dealing on the fix can and do change their orders - or indeed cancel them during the process. This is fundamental and fixing members will not know their own client orders in advance of the fixing process - let alone clients orders done through other fixing members.

    If the London gold dealers had consistently shorted gold as maintained then they would have incurred losses of such a colossal scale to render the economic crisis a sideshow in comparison (gold has rallied sixfold over the last decade). In short, the desks would have been closed down 10 years ago.

    The reports conclude that the process is "open to manipulation" - which has been taken up by the wider media to presume with certainty that it has. You could add that any deal on the floor of any exchange or where there is a human element has precisely the same weakness. To presume guilt is something altogether different. We do seem to live in a world where rumour carries more weight than fact or any real endeavor to understand how things operate.

    If vested interest is the key issue here then one wonders about the motivation of the report author who stands to benefit directly and personally from these allegations. Bloomberg - shame on you also for a lack of journalistic discretion and judgment ... and a failure to ask the right questions...

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  • It doesn't take a conspiracy theorist to understand that when individuals/corporate entities have a large financial inducement to conspire to manipulate a " price" with a small likelihood of being caught out they will do so. In the case of manipulation of the gold and other precious metal ( especially silver ) it is fairly blatant. As silver traders we gain from a low silver price but other parties such as unhedged miners must be
    suffering from this collusion.
    To see how the market is being affected watch the way any substantial uptick in the gold price brought about by demand for physical delivery is countered by a wall of paper derivatives. Its quite entertaining but not the way I think free markets should operate. The Bunker Hunt's tried to corner the market, but in my opinion the current trading is far more sinister. I am mentioning no names for obvious reasons but a competent investigative journalist would be able to find out easily.

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  • What Ross Norman fails to mention is that if the London gold dealers shorted paper gold (derivatives and ETFs) but bought physical metal cheap after they had driven down the price, they might find themselves in profit. Have a good look around

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