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"It is to be regretted that the rich and powerful too
often bend the acts of government to their selfish purposes... There are no
necessary evils in government. Its evils exist only in its abuses. If it
would confine itself to equal protection, and, as Heaven does its rains,
shower its favors alike on the high and the low, the rich and the poor, it
would be an unqualified blessing."
Andrew Jackson, Veto Message of the Second Central Bank of the United
States
Thanks to two hard working and exceptionally clever analysts, we have a clear
picture of the regularity with which the world price of gold has
been manipulated by paper trading in New York and London.
Nick Laird, the data wrangler of Sharelynx,com, has constructed a five year
rolling average of price movements for gold throughout the day.
Given that this is five years worth of data, it would be very difficult to
say that it is some sort of anomaly.
And thanks also to Dave Kranzler, of Investment Research Dynamics, who has been
insightful in his markings on the chart to show the significance of the price
movements. Dave manages a hedge fund specializing in precious metals,
and also offers research reports on mining companies which is his area
of greatest investment interest.
I have added a few things to Dave's work, because
compared to the Denver bronco I am a bit more challenged by age in reading
small, pale type on charts.
As you can see on the chart below, gold almost invariably
rises during Asian trading hours, where the predominantly physical trade is
engage in the price discovery of bullion.
After the Asian trading markets close, gold typically
begins a precipitous drop, culminating in an initial bottom around the London
AM fix.
The London price fix (fix, what an ironically
appropriate name in American slang) is conducted in the United States dollar
(USD), the Pound sterling (GBP), and the Euro (EUR) daily at 10.30am and 3pm,
London time. The fix used to be conducted in meetings on the premises of N.
M. Rothschild & Sons by the members of The London Gold Market Fixing Ltd.
In 2004 Rothschild exited that position in London, and sold its seat in the
operation to Barclays Bank.
Since that time the AM and PM Gold Fix have been set on a
private conference call by Barclays, HSBC, Société Générale, and
Scotia-Mocatta.
Barclays, among others, played a prominent role in the
recent LIBOR
rigging scandal, as you may recall. The similarities between the
LIBOR fix and the Gold Fix are interesting.
The London regulators have been actively working to
replace the London Gold Fix, which really is a holdover from the overtly
government controlled gold markets of the last century. A recent news story relates that the Gold Fix will now be managed by ICE,
a US based conglomerate of exchanges backed by the major Banks among
others. You may read more about ICE here.
"Intercontinental Exchange Inc.’s IBA will provide a
price platform, methodology and administer the procedure that now takes place
by phone each day at 10:30 a.m. and 3 p.m., the London Bullion Market
Association and ICE said today in statements. Societe Generale SA, Bank of
Nova Scotia, HSBC Holdings Plc and Barclays Plc currently conduct the fixings
used by miners to central banks to trade and value metal."
There is no mention of what steps the CFTC is taking to
change anything about the manner in which the US gold futures business is
conducted, even though it is clearly part of the paper rigging. Perhaps they
assume that whatever changes the ICE introduces in London which provide a
more reliable and transparent platform for trading in New York. Talk about foxes and henhouses.
I think it is important that we understand that the world
has bifurcated into two precious metals markets, one of paper and leverage,
and the other of price discovery and physical bullion. And that this is
no rogue trading operation. It is a pool that has been established to
manipulate the market. It almost doesn't matter who believes or doesn't
believe it anymore. The die is cast, and the invisible hand is getting
ready to set forth a banquet of consequences.
History suggests that when the price of the metals,
having been long suppressed for years apparently, revert to the natural
demands of the market, and rocket to the upside, that we should feel no
sympathy for the manipulators' discomfort. Or any willingness to bail
them out yet again, I would hope.
And as for the semi-official participants, such as former central bankers,
politicians, and regulators, I suspect that they will tell the
usual lies, and seek to rewrite history to save their own highborn
skins. Some of that appears
to be going on already, by those of them who are more astutely aware that
the jig may be almost up.
And we will continue to pretend to believe them.
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