Further proof of manipulation of gold and silver
prices - if any were needed - came overnight as Switzerland’s
financial regulator (FINMA) found “serious misconduct” and a “clear attempt
to manipulate precious metals benchmarks” by UBS employees in precious metals
trading, particularly with silver.
Bloomberg report
Switzerland’s regulator found “serious misconduct” by UBS
AG (UBSN) employees in precious metals trading, particularly with silver, as
part of its review of the bank’s foreign-exchange business.
Electronic chats played a “key” role in the improper
conduct in foreign exchange and precious metals trading, the Swiss Financial
Market Supervisory Authority, or Finma, said in a statement today. It found
front running, when traders profit from advance knowledge about a transaction
expected to influence prices, over client orders for silver.
It is believed that traders manipulated the gold and silver bullion fixes. The benchmarks known as the gold and silver
"fix" were used to ascertain gold prices twice daily and silver
prices once a day for the precious metals industry and market participants
including investors.
Along with other precious metal benchmarks, it has come
under increased regulatory scrutiny since the Libor manipulation revelations
in the foreign exchange market in 2012.
Reuters Report
Swiss regulator FINMA said on Wednesday that it found a clear
attempt to manipulate precious metals benchmarks during its
probe of precious metals and foreign exchange trading at UBS
"The behavior patterns in precious metals were
somewhat similar to the behavior patterns in foreign exchange," FINMA
director Mark Branson said in a conference call with journalists. "UBS
has both precious metals and foreign exchange desks under combined leadership,
therefore it's not that surprising that one has similar behavior
patterns."
"But we have also seen a clear attempt to manipulate fixes in the
precious metal market."
The Swiss watchdog said earlier that a recent probe
showed UBS tried to manipulate foreign exchange benchmarks and staff acted
against client interests. It ordered the bank to hand over 134 million Swiss
francs ($139 million) in a forex probe.
UBS said in its annual report in May that it had
widened an internal probe of its foreign exchange operations to include
precious metals trading.
The gold fix was until this year set by
five banks via a twice a day conference call. Similar mechanisms existed for
silver, platinum and palladium. UBS was not among the fixing members.
Deutsche Bank said in January it was putting its gold fix
seat up for sale, but failed to find a buyer, leaving the fixing process with
only four members.
Members later announced they would disband the gold fix,
which will be replaced later this year by an electronic gold platform operated
by U.S. bourse Intercontinental Exchange (ICE).
Switzerland's financial regulator said it would limit
bonuses for some UBS employees, as it ordered the bank to disgorge 134
million Swiss francs (138.98 million US dollars) (87.26 million pound) in a foreign
exchange trading probe.
The Berne based regulator also said it had begun
enforcement proceedings against 11 former and current unnamed UBS employees.
FINMA said variable pay for UBS forex and precious metals
employees globally would be limited to 200% of their basic salary for two
years. Hardly a deterrent to criminal financial behaviour.
The regulator also said it would introduce an approval
process for other high earners at UBS's Swiss investment bank. UBS is also
obliged to automate at least 95% of its global foreign exchange trading,
FINMA said.
The order by the Swiss regulator is bigger than the 59
million francs in profits demanded in 2012 in order to settle a case over the
rigging of the London Interbank Offered Rate (Libor).
Separately, the UK fined five major banks 1.1
billion pounds ($1.75 billion) for “failings” in currency trading in a
landmark settlement after a scandal that has roiled the world's largest
market.
In what appeared like a coordinated move, the Commodity
Futures Trading Commission (CFTC) said it was fining five banks $1.4
billion for attempted manipulation in the foreign exchange market.
The CFTC said traders had used private online chat rooms
to communicate. They had disclosed confidential customer order information
and trading positions, and altered their positions accordingly to
"benefit the interests of the collective group".
Gold in U.S. Dollars - 10 Years (Thomson
Reuters)
Gold prices have been under increased regulatory scrutiny
this year. Barclays Plc was fined 26 million pounds ($43.8 million) in May
for manipulating gold prices. The bank claimed the “failures” were due to lax
internal controls that allowed a trader to manipulate gold prices rather than
a systematic attempt to manipulate the gold price.
Banks continue to get mere slaps on the wrists
for breaking the law. Very few traders or bankers have faced prosecution or
jail time. Instead, regulators levy completely ineffectual fines that are
tiny when compared to their annual bonuses and indeed profits.
As long as this continues, we will continue to
see criminal behaviour and banks attempting to manipulate and rig markets at
the expense of investors and other financial market participants.
Such behaviour is creating huge distortions in
markets and will likely contribute to another financial crash and crisis.
Get Breaking News and Updates on the Gold Market Here
MARKET UPDATE
Today’s AM fix was USD 1,163.25, EUR 934.41 and GBP
731.83 per ounce.
Yesterday’s AM fix was USD 1,151.25, EUR 927.90 and GBP 726.43 per ounce.
Gold climbed $16.40 or 1.43% to $1,165.80 per ounce
yesterday and silver rose $0.18 or 1.16% at $15.74 per ounce.
Gold in EUR - 1 Year (Thomson Reuters)
Spot gold was last at $1,163.00/1,163.80 per ounce, up $2
on Tuesday’s close and trading within a $9 intraday range.
Physical demand for bullion
coins and bars
has increased and investor interest
has picked up marginally after the metals became oversold. The next
resistance level is seen at the previous support at $1,180.
The dollar was last
at 1.2460 against the euro, up 0.15 cents on concerns that the ECB may
introduce fresh monetary easing measures to kick-start the Eurozone’s
stumbling economy. Euro gold is well supported at €900/oz and has recovered
to €934/oz.
Swiss regulator
FINMA said today, "we have also seen a clear attempt to manipulate fixes
in the precious metal market (see above)" The Swiss watchdog said
earlier that a recent probe showed UBS tried to manipulate foreign exchange
benchmarks and staff acted against client interests. It ordered the bank to
hand over 134 million Swiss francs ($139 million) in a forex probe.
The London Bullion
Market Association (LBMA) will stop producing its gold lending rates data
from January 30th as banks shy away from the risks of providing financial
benchmarks, a source close to the situation told Reuters today.
The Gold Forward
Offered (GOFO) rate is used as a benchmark for dealers, central banks and
others to swap gold for dollars. The LBMA currently sets GOFO each day by
polling its eight major bank dealers, including UBS and JP Morgan on the
rates at which they are prepared to lend gold.
Gold
in GBP - YTD 2014 (Thomson Reuters)
The
Bank of England cut its growth forecasts and noted inflation could fall under
1% within months as a renewed slump in the euro area puts pressure on the
U.K. economy.
Today's
inflation report by BoE Governor, Mark Carney, forecast expansion of 2.9% in
2015 and 2.6% in 2016. That’s below previous forecasts of 3.1% and 2.8%
in August.
They
also said inflation will return to the 2% target in three years, nearly
validating investors’ expectations that rate increases may not begin for
almost another year. Gold in sterling remains attractive due negative real
interest rates and the risk of a renewed bout of sterling weakness in the
coming months.
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