Banks accused of gold fix price manipulation

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Trader files US federal lawsuit on behalf of himself and investors.

The five banks tasked with setting the London benchmark gold price have been accused of manipulating prices in a federal lawsuit filed at a New York court.

New York resident and COMEX trader Kevin Maher, who filed the report, claims the banks – Societe Generale, Deutsche Bank, Barclays, Bank of Nova Scotia and HSBC – colluded to manipulate prices for profit in a large scale fraud plot.

Maher, who says he bought and sold gold, gold futures and options, has filed the suit on behalf of himself and other investors who held or traded gold and gold derivatives based on the bank-set gold fix from 2004 to now. The lawsuit is seeking unspecified financial compensation.

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The March 3 filing follows last week’s revelation that the London gold fix price might have been manipulated for a decade, in a draft research paper by Rose Abrantes-Metz, a professor at New York University’s Stern School of Business.

In response to Maher’s filing, Deutsche Bank released a statement that the suit is unsubstantiated and that the bank “will vigorously defend against it”.

According to Reuters, a spokesperson for Societe Generale said: “Societe Generale appears to have been named as a defendant in these proceedings together with other members of the London Gold Market Fixing Ltd. The claims are unsubstantiated and Societe Generale will defend these proceedings."

Barclays and HSBC have declined to comment.

Maher’s suit appears to be the first public reaction to Abrantes-Metz’s draft paper, which was released at the end of February 2014. The draft paper states that unusual trading patterns have been recorded daily over the past decade at 3pm GMT – when the banks do their second daily fix calculation – with prices tending to move downwards when compared to the 10.30am teleconferences.

According to Abrantes-Metz, the drop in prices indicates that the London gold fix had been manipulated by those that set it, namely the five banks involved.

Because mining companies, jewellers and central banks use the benchmark gold fix price to value gold, it is thought that manipulating this figure can have significant consequences.

In Maher’s lawsuit he cites “unusually large price spikes” cannot be explained by news or other world events. He alleges the pattern started after Barclays took over as chairman of the gold fix group in 2004.

What is the gold fix?
Gold fixing happens twice a day in teleconferences between banks. Each banks’ chairman announces an opening price, with this information on to customers and, based on orders received from them, banks instruct their representatives to declare themselves buyers or sellers at that set price.

The price is adjusted up and down until a balance between demand and supply can be found. At this point the benchmark price is declared “fixed” – thus helping to determine prices globally.

It is understood that regulators have been looking more closely at how banks set the benchmarks like the gold fix since the Libor rigging scandal of 2008, which exposed wide-spread interest rate manipulation.


Sources: Reuters, Gold Investing News, JCK Online.

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