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The paper is the first to raise the possibility that the five banks overseeing the century-old rate -- Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc and Societe Generale SA -- may have been actively working together to manipulate the benchmark. ...
The overhaul of the gold fixing benchmark formally known as the London Gold Fix is due to begin in March. Participants are hoping that there is less disorder than was seen for the messy launch of the London Silver Price (LSP) last August.
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The new system is set to replace the current one which is currently being run by just four western bullion banks, one of whom – Barclay’s – were fined for manipulation of the gold price last year. A second one, UBS, was found guilty by Switzerland’s financial regulator (FINMA) of “serious misconduct” and a “clear attempt to manipulate precious metals benchmarks,” particularly with silver.
The new system is set to expand participation to at least 11 members including some Chinese banks for the first time. Given that China is now the largest producer and buyer of gold in the world, it is significant that Chinese interests will have a say in determining the daily price fix along with the current British, Canadian and French banks.
The change in weighting at the London Gold Fix to give the Chinese representation of over 25% appears to be driven by fear that the Shanghai Gold Exchange (SGE) may soon supersede London as the hub of the global gold market and location where the daily gold price is determined.
This may explain the apparent rush by the LBMA to implement the new system instead of waiting an extra month to get the necessary guidelines from the FCA.
The current process, where the daily gold price is determined by telephone calls from the four participant banks has been in place since 1919. It is set to be replaced by an electronic system.
It appears that the same level of transparency, or lack thereof, will continue to prevail under the new system – as is the case with the LSP, established last year.
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... how can they do this so openly and for so long with impunity ?
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The U.S. Department of Justice (DoJ) and the Commodity Futures Trading Commission are investigating at least 10 major banks for possible rigging of precious-metals markets, the Wall Street Journal reported, citing people close to the inquiries.
DoJ prosecutors are scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the CFTC has opened a civil investigation, the newspaper said.
The banks are HSBC Holdings Plc, Bank of Nova Scotia, Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, JPMorgan Chase & Co, Societe Generale, Standard Bank Group Ltd and UBS Group AG, the Journal said.
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Central banks have expressed interest in joining the London Bullion Market Association, which pretty much runs the London gold market, according to a report by the LBMA's chief executive officer in the May edition of its newsletter, The Alchemist.
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China conducted trial runs for the planned launch of a yuan-denominated gold fix last month, three sources familiar with the matter said, in a sign the world's second-biggest bullion consumer was moving closer to creating a benchmark price.
The state-run Shanghai Gold Exchange (SGE), on whose international platform the fix will be launched, conducted the trial with major Chinese banks and a few foreign banks, the sources said this week.
The SGE could not be immediately reached for comment.
China, also the top gold producer, feels its market weight should entitle it to be a price-setter for bullion and it is asserting itself at a time when the established benchmark, the century-old London fix, is under scrutiny because of alleged price-manipulation.
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China plans to launch a yuan gold fix this year through trading of a 1 kg contract on the SGE, Reuters reported in February.
"The launch of the fix is towards the end of the year ... Banks were invited in April to test the fixing process," said one of the sources directly involved in the process.
The SGE will act as the central counterparty, unlike the London fix where the bullion banks settle trades amongst themselves, the source said.
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If the Chinese fix becomes a success, it could add to the pressure on the London benchmark, which is used worldwide by producers, refiners and central banks to price holdings and contracts, although the two could exist side-by-side.
This is a national issue and I am sure that authorities are doing their best to deal with the situation and soon enough all the problems will be sorted.
In a brazen development reminiscent of a culprit returning to a crime scene, news has emerged that Germany’s infamous Deutsche Bank is planning to re-join the London Bullion Market Association (LBMA), exactly 9 year after having fled the London gold and silver markets.
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For those who don’t know the background or have forgotten, recall that it was Deutsche Bank’s abrupt and suspicious departure from the London precious metals markets 9 years ago in January 2014 that actually led to the collapse of the old London Gold and Silver Fixings, as well as the sleight of hand switcheroo replacement of these Fixings with the ‘same old wine in a new bottle’ in the guise of the current LBMA Gold Price and LBMA Silver Price auctions.
This unraveling of the old Fixings then triggered the rest of the bullion banks to flee the sinking Fixings ship, which subsequently precipitated class action suits against Deutsche and its bullion bank peers, as well as US Department of Justice prosecution against Deutsche and other bullion bank traders for precious metals price manipulation.
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When the twice daily LBMA Gold Price auction was launched on 20 March 2015 to replace the infamous and London Gold Fixing, one of the mantras from the ‘Fox Guarding the Henhouse’ at that time was that the new improved auction would include an expanded list of participants beyond the old ‘Gang of 5’ cartel of Fixers which had been Barclays, HSBC, Société Générale Scotia and Deutsche Bank.
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When it came to the crunch, only cartel insiders such as Goldman Sachs and JPMorgan became additional direct participants in the auction from ‘day one’, as no Chinese banks were allowed to join the LBMA Gold Price auctions from ‘day one’ even though Bank of China, the Industrial and Commercial Bank of China (ICBC), and China Construction Bank (CCB) were fully eligible. See BullionStar article from 13 March 2015 “Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!”.
However, these three massive Chinese banks did join the daily ‘unallocated gold’ LBMA Gold Price auctions in piecemeal fashion over the next 15 months during 2015 and 2016.
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So far so good. This addition of four of China’s largest banks, all of which are heavily involved in the Chinese gold market, to the daily LBMA Gold Price auctions over 2015-2016, was a major shift in the gold benchmark price setting process, and signalled that the Chinese banks had arrived on the global stage.
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At one stage in 2017, there were 4 Chinese banks in the LBMA Gold Price auction, as the LBMA stated:“The direct participants who have been accredited to contribute to the LBMA Gold Price are: Bank of China, Bank of Communications, China Construction Bank*, Goldman Sachs International, HSBC Bank USA NA, Industrial and Commercial Bank of China (ICBC), INTL FCStone, JP Morgan, Jane Street Global Trading LLC, Morgan Stanley, Societe Generale*, Standard Chartered*, The Bank of Nova Scotia – ScotiaMocatta, The Toronto Dominion Bank and UBS*. (*Date of participating in the cleared auction to be determined)."
Given the above, I think you’ll agree that its rather odd and suspicious then that all of these Chinese banks have recently disappeared from the LBMA Gold Price again. Yes, that’s correct. They have all disappeared.
At the current time, there is not even one Chinese bank left in the London gold auction. The most recent to leave was Bank of China, where ICE Benchmark Administration (IBA) bizarrely claims that Bank of China itself requested that it be temporarily suspended from the LBMA Gold Price auctions.
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More:
Why Have Chinese Banks Disappeared From LBMA Gold Auctions?
ICBC, Bank of Communications & Bank of China have all mysteriously gone...www.bullionstar.com
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