HomeBullion & Precious MetalsFallout Already Starting From Investigations Into London Gold And Silver Market Price...

Fallout Already Starting From Investigations Into London Gold And Silver Market Price Manipulations

By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com …..

With all the investigations into market rigging in the mortgage markets, LIBOR interest rate market, and foreign currency exchange trading, it should come as no surprise that official investigations have started into the manipulation of the London market gold and silver price fixes.  Even though investigations are still in the early stages, there has already been major fallout over how the London gold and silver markets operate.

Last March, the US Commodities Futures Trading Commission (CFTC) began an inquiry into the process of establishing the twice-daily gold and once-daily silver price fixes in London.

investigation_dogThe British Financial Conduct Authority (FCA) began a review last November of how Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings, Plc, and Societe General SA set the value of gold twice a day for the London market gold fix.

The London Bullion Market Association traded an average of $33 billion in gold each day in 2012, greater than the average of $29 billion traded daily in the New York COMEX market that year.  It is the world’s largest gold trading center.  In theory, the London fixes are set prices at which all buys and sells are settled.  However, the determination of each fix takes from a few minutes to more than an hour.  While the fix is being determined, each of the five parties involved in determining the fix price are trading metals and related derivatives.

As Thorsten Polleit, chief economist at German precious metals broker Degussa said, “Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people’s knowledge.  That is the great flaw of the London gold-fixing.”

Rosa Abrantes-Metz, a professor at the New York University Stern School of Business who wrote a paper in 2008 that sparked the worldwide probe into manipulation of the LIBOR market said of the process of determining the London gold fixes, “It’s controlled by a handful of firms with a direct financial interest in where it’s set, and there is virtually no oversight—and it’s based on information exchanged among them during undisclosed calls.”

After the FCA disclosed their investigation, the London Bullion Market Association said it was reviewing its benchmarks for conformity to guidelines set by the International Organization of Securities Commissions last July.

In December, German banking regulator Bafin demanded documents from Deutsche Bank for an inquiry into suspected gold and silver price manipulation by banks.

No particular news had been forthcoming on either investigation until reports emerged last week that Deutsche Bank had suspended several foreign exchange traders from its New York offices.  The bank then announced that it would exit its involvement in the London gold price fixing market and sell its seat to another member of the London Bullion Market Association.

Then the details of the initial return of the German central bank gold from the New York Federal Reserve Bank kept changing.  Germany has tens of millions of ounces of its central bank gold deposited with the Fed.  On January 16, 2013, it announced that it would be repatriating almost 10 million ounces of reserves from the New York Fed.  After negotiations with the Fed, it was agreed that the gold would be returned over the course of seven years.

In theory, the exact gold bars that the German government had delivered to the Fed should still be there.  Both central banks should have the brand names and the serial numbers of the exact bars.  Therefore, if Germany received some of these gold reserves, they should match right up with the serial numbers on the inventory list.

However, that is definitely not what happened.  Out of nearly 10 million ounces to be returned over seven years, the Fed delivered approximately 160,000 ounces by the end of 2013.  Both the Federal Reserve and the German central bank confirm that the gold bars repatriated were not the same bars that Germany delivered to the Fed.  The statements on the nature of the gold that was sent to Germany differ and also keep changing.  One report is that the Fed had melted the gold to make them deliverable on commodity exchanges while another story said that the German central bank did so once they received the gold.

Whichever version is true, it is evident that the Federal Reserve might be unable to return to Germany the exact same gold bars that it had originally received.  Since it would obviously have been simple to just return the same bars to Germany—if the Federal Reserve still had them—questions arise.  Does the Fed still have the gold that Germany deposited?  If so, why wasn’t it returned?  If not, what happened to it?

This week, the five banks that set the London gold fix announced that they have formed a steering committee.  This committee will seek external advice on how to improve the process of establishing the daily fixes.  Obviously, the investigations into possible gold and silver market price manipulation have the management at Deutsche Bank spooked along with the other banks that set the London gold fixes.  Will the truth about what has gone on ever be revealed?


Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award.  He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.  Past newsletter issues can be viewed at http://www.libertycoinservice.com.  Other commentaries are available at Numismaster (under “News & Articles) .  His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

Patrick A Heller
Patrick A Heller
Patrick A. Heller was honored with the American Numismatic Association’s 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com). He is also the financier and executive producer of the movie “Alongside Night”.

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  1. Thanks. This is a great article, well written.

    This makes it appear that it will take the US 7 years to come up with the total amount of gold (10M oz) owed to the German Central Bank. This begs the question:

    Does the US Fed have all of the gold it has recorded on its books?

  2. yea I was at Fort Knox to see my son the gold that they say is there was well guarded not sure when the last time the gold was account it for ? I think there are yellow sinder BLOCKs there !!!! { well guarded blocks } we the people are so dummmmmmmmmmmm the fed is a joke, we need to get real money back silve & gold How long will the world send us there goods and take are tree in payment ???? thanks sam

  3. The CFTC is gonna help? Really? They did such a fine job of investigating silver manipulation on our side of the pond. The contracts these thieves write are so much larger than the Hunts. They hammer them because they were cutting into banker’s giant piece of the action.

  4. Well of course they manipulated the market for precious metals. There is no profit if there is no buy and sell orders. It’s about driving up the market to collect great sums in commissions and then creating a sell panic to dive it back down and get another great sum of commissions. It’s all about the bottom line.

  5. Today America has competing currencies in circulation. They are 1. Federal Reserve dollars and 2. dollars issued by the US Treasury. Treasury dollars are not backed by debt as are Federal Reserve dollars. A critical mass of Americans need to finally wake up and demand repeal of the Federal Reserves’ charter. If this never happens, then -when- (probably not -if-) the Federal Reserve dollar ends in hyperinflation, I expect Treasury dollars to continue circulating, probably valued at or near that of their base metal composition. All that is necessary now, while the choice can be made voluntarily, and will be necessary at this future critical juncture, if the choice is to be made involuntarily, to restore sound money, is for individuals to return coins of the US Treasury to their rightful place as circulating specie.

  6. C’mon guys, knock it off! You guys are some of the driest comedy writers I’ve ever read. “Repeal the Federal Reserve’s charter..”. “”Real money back silve (sic) & gold”. Stop it! You’re going to make me pee myself!

    Man, and they say the guys at Saturday Night Live are hot comedy writers. You guys have them beat all to heck.

    Learn this: BERNANKE SAVED THE WORLD IN 2008/09! FACT!

  7. Does NO ONE in the numismatic field understand monetary policy any more? It sure seems like they don’t. EVERY bank loan, even from a local bank, CREATES money! Doubt that? Whose balance goes DOWN among the depositors when a loan is made? NOBODY’S, THAT’S WHOSE! The borrower’s cash balance goes up, and no depositor’s balance goes down. Voila! Newly created money. The Fed is only responsible for less than 9% of new money historically. The rest comes (91%+) from regular bank lending. Grow up, guys! Learn some basic economics and get your heads out of Patriot or Tea Party propaganda!

    • Kurt:

      I am the first one to admit that I know nothing about monetary policy, and certainly way too little about modern economic theory, but knowing you work in the legislative world of state government (I think that is correct?) could you explain a couple of things to me, like you would to a total novice…..Ok here goes……..

      1) If the Federal reserve “creates money” they also immediately create debt along with that correct?

      2) And if they sell that debt in the form of Treasury bonds, then the US Government is responsible to pay that money back, with interest, correct?

      3) Now if I have read reports correctly, the Fed is actually buying back up to 50% of the bonds being issued from the 65 Billion a month QE program, is that correct?

      4) And right now the US has a 17.4 Trillion national debt, on which we are paying historically low interest rates, again I am assuming this is correct

      It seems to me that…. a) given the amount of money being spent by Federal, State and Local governments right now, and b) the fact that the real unemployment rate is substantially more than 7%, and c) that at some point interest rates are going to have to rise and d) the Fed will have to stop priming the pump with cash… then the only way we will ever be able to pay off the debt is to monetize the debt and pay it back with cheaper dollars, or can we choose to not pay it back at all?

      Without creating some sort of asset bubble to provide liquidity that includes all the middle class, or creating millions of high paying jobs, or literally taxing people into oblivion, how are we ever going to provide all of the services people now demand, and just pay the interest on the debt, without massive new taxes, higher inflation and devaluation of the US Dollar?

      I may be a simple man with simple ideas, but how is the road we are on right now sustainable in any fantasy land scenario you want to construct?

      I just don’t get it and I have yet to find anyone who can explain it in plain language with a straight face. Want to give it a shot?

    • (cont’d from above)
      3) From the beginning of QE-Latest, until December 2013, the FOMC made a commitment to buying $85 Billion of Treasury debt OF VARIOUS MATURITIES (note: IMPORTANT) per month. Then, $75B in January 2014 and $65B in February 2014. Here’s one place where “common man math” goes astray. If the Fed buys $85B for 10 months, they have added a total of $850B to their portfolio, right? WRONG!!! Some of those bonds matured (the short maturity ones) and the small interest income has been RETURNED TO THE NATIONAL FINANCES! It’s as if there was no interest ever paid. Truly the more the FOMC adds Treasuries to its portfolio, the less problematic all that debt is!!!! Interestingly, while in some months that $85B, now $65B was a HUGE chunk of all debt issued, some months the FOMC’s purchases were LESS than the debt that matured or was sold off to other bond buyers. Think of the FOMC’s holdings as an inventory warehouse. If some bond buyer, like a major investor fleeing India’s market because of its collapsing currency due to political risk, the FOMC is tapped as a ready inventory for that new, albeit probably short-term, demand for U.S. Treasury debt.

      4) Absolutely spot on correct! The Federal Reserve is trying to create the LOWEST POSSIBLE LOW-RISK INTEREST RATES IT POSSIBLY CAN, and it has been exceptionally good at it. And it’s a damned good thing, too. High interest rates STARVE economic growth when there is high unemployment.

      Now, to your predictive paragraph:
      On your prediction c), that interest rates will have to go up, I ask, “Why? And caused by what?” Keep in mind, short-term interest rates can ONLY go up when the Fed, through the FOMC says so. Long-term rates are more whole market driven, particularly mortgage / housing demand, but keep in mind that for the first time EVER, the Fed is playing in the long-term interest rate game, through the famous QE-Housing “Twist” program started about March-April 2013. The Fed is now actively depressing 15-30 year mortgage interest rates as well as short-term rates.

      Now, to the nub of the issue, your d) section and the paragraphs that follow, “The Way Out From Where We Are”:
      There are four possible, and I would submit ALL NECESSARY portions of the way out. You have identified them all but I use different terms. They are 1) monetization through some more inflation, 2) tax rate increases for some, 3) tax base expansion through tax reform, 4) tax base expansion through vast economic growth.

      Now, for just about everyone, at least one of those is unthinkable. For those on fixed incomes, it’s 1). For current high earners, it’s 2). For foreign tax haven countries whose economies rely on being a hiding place for assets, it’s 3). For the “green” crowd, it’s 4).

      It will not surprise you that I say, “Screw all 4 of those groups. Do them ALL!”

      • One group benefits from hammering all four of those previously mentioned groups which have issues with the 4 ways out, and it is THAT group about which the federal government most cares and which frankly NEEDS the most help – the unemployed and chronically underemployed. THEY are getting the preferred treatment right now by the Federal Reserve’s policy, as they should. Right now, youngsters entering the job market can’t even afford to share an apartment, much less save for a down payment on a home or save for retirement. Our governmental policy has for too long favored those with money to save and/or burn. It’s time we favor those trying to earn a living, even if it means our grandparents and parents can’t earn a decent interest rate without risk. If we don’t do this, once the current well-off oldsters are gone, the economy will not be able to stand.

        • I would totally disagree that the unemployed and under-employed are the beneficiaries of Fed policy. It mostly saved the banks, which is what it was intended to do because the credit markets totally froze up. So the federal debt climbs to save the very people who created the CDS and derivatives markets that imploded, and everything just goes back to business as usual.

          The chronic unemployed are held back more due to lack of ability to communicate effectively, addiction and health issues (physical and mental), none of which the government can solve. A large dose of cultural issues also come into play that effectively put a “finger on the scale” against these groups achieving positive outcomes.

          • Yes, I do see SOME of that lifestyle “finger on the scale” thing at work, I do. But it has now infected an entire age group, even those who don’t do drugs, or even drink, don’t have shrapnel on their faces, and are well-groomed. We haven’t hired an entry level staffer here at my state Capitol in over four years now, and we used to hire plenty every year. We have greatly reduced staff to a level where members are beyatching and moaning because they have to share assistants with other members. Morale s*cks and productivity is strained. The members who have been here more than 5 years are not used to this … austerity. They don’t much like it.

          • Just look at what we now expect new job market entrants to do! We expect each of them to support 0.5 Social Security recipients, subsidize their health care through confiscatory premiums for their own coverage, we hammer them with all-of-a-sudden ridiculously high interest rates on student loans, fueled by obscene tuitions, we charge them ridiculous auto insurance rates because too many of their contemporaries are morons, and then, oh yeah, we pay them sh—, err, feces wages, and then we lecture them about saving. We’re the morons, Scott.

      • My dad is 91, and fully 81% of his sizable portfolio is in equities (stocks), some in bonds, some in REITs. He has NADA, ZIP, ZILCH, ZERO in precious metals, other than his date-based coin collections from his youth.

        His portfolio value is now well above its all-time pre-crash high. He had the guts to buy bank and automobile stocks when they were beaten to death. That’s what it takes to succeed – buy LOW and sell HIGH, unlike what coin people do, which is BUY when it’s already high and sell at your estate sale because they can never admit while alive that they overpaid for the junk.

        • Kurt – That is great about your Dad, but what about the 53% of americans that do not particiate in the stock market…. at all. The policies that have allowed the stock markets to re-inflate from the crushing loses sustained during the crash only benefit, best case one in three ammericans, and more realistically 1 in 5. So the gap between the people whi need help the most and those who have benefitted the most just keeps getting larger.

          • We nearly ALL participate in the stock market, through pensions, IRA’s, 401(k)’s, Roth IRA’s, etc. if anyone DOESN’T have something along those lines and is stockpiling silver coins instead, well, he’s just a moron,

          • You can’t do a retirement plan with CD’s any more, and you won’t be able to in the future either, until we get back to something approaching full employment. The Fed’s job is NOT to protect the value of savers’ holdings, sorry but it just isn’t. Ya gotta get over that idea! The U.S. Central bank’s mandate, more than any other in the world, is to promote full employment while holding a small steady amount of inflation.

      • Interesting that nowhere is there discussion about reductions in spending. Do you think it is possible to have unlimited growth? Do you see any limits on sustainability?

        • Economic growth? No, not really. Of course there are very real limits to sustainable growth in any one enterprise, sure. But that’s only because we have stopped promoting or even FORCING firms to compete rather than acquire one another. We need a Teddy Roosevelt trust busting mentality back again. The reason there is no talk of reducing spending is that if government spending decreases and is not replaced by either consumption spending or real investment (plant, equipment,….enterprises…, not financial “investment per se which is a zero sum game), the economy implodes. Government spending must be weaned off SLOWLY so that private enterprise can fill in for it in real time. Or else you get what happened in the mid-1930’s, the second even BIGGER dip of the Great Depression. Over the long term we need to reduce government spending as a portion of GDP, but NOT suddenly and certainly not now -only as unemployment subsides, IF it does.

  8. Okay Steve, here goes an attempt. (Keep in mind it took me 4 years of intensive study 40 years ago to really learn this stuff. Not all attempts “took” at the first attempt. My first “Money and Banking” overview course was a big challenge. It is NOT a intuitive subject – it almost feels like Wonderland.)

    First, yes, you are correct. I am one of the people who “translate” legislation into and out of “plain language” for people, for the Pennsylvania legislature.

    On your numbered points, here we go:

    1) No, the Fed(eral Reserve) does not do most of the money creation, commercial banks do about 10/11ths of it. The Fed only does about 1/11th of it. When the financial crisis of 08-09 fully hit, people and corporations gradually paid down loan balances and did not take out as many new loans to replace the paid (or written down to market value for the “unperforming” or “bad” loans out there. This created a massive DECREASE in the supply of “bank created money”. The Fed felt they had to replace that rapidly falling “bank money” with “Fed money” or risk YET ANOTHER economic hit, a lack of borrowable funds for that reduced pool of potential borrowers who COULD qualify for bank financing.

    2) The Fed does NOT issue the debt. The Fed is a quasi public / quasi private entity that sits at the pinnacle of the banking system, a private enterprise. Their leadership is appointed by the President and confirmed by the Senate, but once confirmed they are INTENDED to be removed from DIRECT political influence, kind of like federal judges. Congress (House and Senate) sets policy prescriptions for the Fed to work toward. The Secretary of the Treasury (FULLY governmental and political) issues the debt up to a limit (moveable) set by the whole Congress. Repeat, the Fed DOES NOT ISSUE ANY DEBT. It buys it and sells it on the open market through the FOMC, the Fed Open Market Committee. When the FOMC is buying, they drive up demand for debt, hence lowering interest rates, since interest rates are determined by the auction value of a piece of debt that will be worth, say, $1000 at some point in the future. Right now, those auctions are finding bidders going ALMOST to the whole $1000, because everyone knows they can always we resold to the FOMC to the tune of $65 billion a month, recently $85 B.

    (continued in next post to keep them tidy)

  9. Interesting discussion. I would add a couple points on the unemployment/jobs issue that neither of you mentioned. Most imp. is the impact of technology on jobs, which will continue to get worse over the coming decades. This means we (the gov’t. and private sector and individuals on their own to the extent they can) need to get training for jobs that are expected to grow, nd people need to keep their skills up to date. Also, addiction issues and such are far less of a factor than the fact that the population of working age people is aging esp. as baby boomers retire in large numbers. Finally, this might sound like socialis to some of you, but the oldest, most respected conservative magazine in the world, the Economist, recently discussed these issues and noted that we are in one of those eras when labor is t a severe disadvantage compared to capital. I of course understand the profit imperative, but there is more than one way to skin a cat. Look at the difference between Walmart, which pays workers less, and Costco, which pays more, which in the long run creates more loyalty and better productivity. Finally, again I am all in favor of making money, but there has to be a balance in the way our society is organized between financial interests and human interests. Look at Germany, which has much lower unemployment, far higher middle class wages, etc. because they believe in investing in their own people such as through retraining programs.
    Also, for those concerned about spending the deficit has been halved under the current admin., and cuts in gov’t spending reduced growth by 1% in the past year. Any more major cuts in the short-term and we would be at risk of another recession. But long-term, of course when the economy is growing faster and there is more demand, we will need to cut spending even more than we did in the past few years.

    • Louis,

      You couldn’t be more correct! We are the ONLY major economy (Europe generally, UK, Canada, Latin America, Japan, China all included) that has as much disdain for our domestic labor force. EVERYBODY else practices significant labor protectionism. Not us! We all of sudden want to let in everybody and call them “guest workers” instead of what the VAST majority are – leeches consuming benefits at the expense of an already heavily burdened domestic middle class. We need to do free TRADE to a significant extent, yes. BUT THAT DOES NOT INCLUDE FREE MOVEMENT OF LABOR. If everyone else played along, Fine. But they don’t.

      You say we need “guest workers” to do jobs Americans won’t do? BULLSNOT! There ARE NO SUCH JOBS – only jobs Americans won’t do at the offered wage. Pay more, dammit! You say I’ll pay more for my fruits and veggies? BULLSNOT! I shop at local farms and orchards (yes, in season at least) where either they or I MYSELF do the picking. Ever pick 10 quarts of blackberries in an afternoon then go home and cook up pies and preserves? Well I have! The only part of the market that “can’t afford to pay American wages” is the uber-corporate sector that ISN’T passing along the savings to the consumer; they’re padding their bottom line!

      Our economy and our country has completely lost its collective mind! “Businesses won’t invest because of uncertainty.” I say, “Get over yo’ bad seff, then.” You don’t like uncertainty? Get the heck out of business and take a 1.2% return on some CD’s. Uncertainty is also called “risk”. Any freshman economics student knows that “profit” is the return for “risk”, just as “rent” is the return for land (or other space), “interest” is the return for capital, etc.

      We have witnessed for 40 years now an organized war on one factor of production – LABOR. It started during the Carter administration when labor got REALLY full of itself and went too far. The “Fort Sumter Moment” was the PATCO air controllers’ strike and Reagan’s response to it. The war on labor has been fought by the Roger Ailes and Rupert Murdoch types ever since, getting ballsyer and ballsyer by the year, culminating in a mostly radio media empire essentially now getting idiots to believe the poor don’t pay enough in taxes and the rich pay too much. INCREDIBLE! I never would have believed this much stupidity was possible, but the evidence is overwhelming. The “spin doctoring” is just amazing! The misuse of vocabulary is astonishing.

      HEY TEA PARTY TYPES and Speaker Boehner: Business owners are NOT “job creators”, CUSTOMERS ARE. We only will stop declining as a nation when we go back to Henry Ford’s philosophy. You have to pay workers enough to be able to buy the product! Expand that philosophy economy-wide, and watch ECONOMIC GROWTH explode! The only thing is business owners won’t make 95% of the money, and that’s the way they not expect it. They have to get over it, or we’ll turn into Bolivia, and it WILL NOT be because of anything the Fed did, but rather what the U.S. House of Representatives keeps blocking!

  10. One more point regarding technology and jobs. I am 58 and the second oldest staffer with my legislative committee. Ihave rapidly greying hair. I also have far MORE computer skills than any of the below:

    My 91 year old widower father. (Duh, right?)
    His new lady friend who is fairly close to my age. (Not as “eww” as it sounds.)
    Both younger lawyers in my office.
    Our receptionist. (also younger than I)
    The Chairman/Legislator.
    My Executive Director of the Committee.
    An estimated 95%+ of the rest of the Capitol staff other than IT personnel.
    SOME of the dedicated IT staff, maybe half or so.

    I write code in three computer languages; I do MS PowerPoint/ Apple Keynote that grab and keep attention; I maintain my own server at home that aside from formal Windows NT training years ago, I’ve managed to keep current strictly on my own.

    Here’s the rub: because I now all of a sudden don’t “qualify” because I don’t have Microsoft certifications and don’t have a new enough Macintosh to be able to run the iOS Software Developers’ Kit, I wear a suit and tie, and have greying hair, no one will even THINK about taking me seriously for my computer skills. My naturally grey hair is short, I’m not Asian, I don’t have tattoos, my face has no shrapnel on it, and since my cataract surgeries, not ONLY don’t I have thick glasses, I nearly wear none.

    I no longer fit the computer geek mold and am not taken seriously. EVERYONE has to face the consequences of “matching the profile” or they get excluded.

    • Oh, and I don’t pick my nose in public, smell bad, wear ill-fitting jeans to work or use a pocket protector, either.

      I do, however, own a couple of black faux turtleneck shirts, have nicely tailored jeans, can hold my hands in an A-shape manner, give a PowerPoint (or Apple Keynote) talk while pacing, and my reading glasses right now ARE round with gold rims. THAT ought to qualify me for a Silicon Valley CEO interview at least, dontcha think?

      “Oh, one more thing…”


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