Goldpreis, Silberpreis

Price of gold, price of silver.

In March 2013 the U.S.A.’s Commodity Futures Trading Commission was looking into, but not formally investigating, possible gold and silver price manipulations in London, the world’s largest gold market. The F.A.Z. mentioned they were especially interested in the “too-intransparent” way the spot price for a troy ounce of gold is set in London twice a day by five banks: Barclays, Deutsche Bank, HSBC Holdings, PLC, Bank of Nova Scotia and Société Générale S.A. The silver price in London is set once per day, at noon, by Bank of Nova Scotia, Deutsche Bank and HSBC. A March 2013 article in Rupert Murdoch’s Wall Street Journal mentioned that the market prices for these metals were important also for the estimated ~$198 million in derivative contracts held by commercial banks in the U.S.A. in September 2012, according to the Office of the Comptroller of the Currency (O.C.C.).

The C.F.T.C. started investigating whether the price of silver had been gamed in 2008 after the silver price fell sharply. No results were ever announced from that investigation, nor was it ever officially closed.

Update on 25 Sep 2013: The C.F.T.C. officially closed its five-year investigation into gaming of silver market prices “without bringing any enforcement actions” reported Bloomberg.com.

Update on 27 Nov 2013: Germany’s BaFin financial regulator announced they would be investigating possible manipulation of gold and silver prices, which Handelsblatt.com said would be called das Goldfixing and das Silberfixing in German. BaFin said that they could not comment on the ongoing investigation but that they were interested in benchmark manipulation in Europe, including benchmarks for the so-called noble metals, currencies and interest rates. Gold and silver prices had been being set by benchmarks controlled by only a handfull of European banks, the Handelsblatt said Wall Street Journal Deutschland said, and alleged that British financial authorities were looking into gold and silver price gaming as well.

Update on 09 May 2014: A wave of U.S. lawsuits is said to be rolling toward the five banks that set the gold price twice each day in London.
The Frankfurter Allgemeine reported on the findings of one analyst, who will be testifying for the plaintiffs, from examining publicly available gold price data from 2010 to 2013. The banks’ twice-daily phone conferences to set the price could take two minutes or two hours, but averaged 15 minutes. During that time, there were bigger fluctuations in the gold price than during the rest of the day when the phone conferences weren’t taking place. The price moved up and down but mostly downward. After the teleconference, the price settled back to where it was before the meeting. During the phone conferences, the banks had access to information their customers did not: the volume of gold being traded, and the prices at which they were trading. That information wasn’t supposed to be shared, but. The U.S. plaintiffs say, look at L.I.B.O.R.

Deutsche Bank is now withdrawing from the five banks, leaving four banks: Barclays, HSBC, Bank of Nova Scotia and Société Générale.

Update on 16 Aug 2014: The price of silver will now be set electronically by auction, in a service offered by the Chicago Mercantile Exchange and Thomson Reuters.

(GOALED prize,   ZILLLL beh prize)

Spotmarkt

Spot market, where financial instruments or commodities are sold for immediate delivery, unlike the futures market where they are sold for delivery at a later date. Wikipedia said a spot market can be an organized market, an exchange or over-the-counter (O.T.C.).

Regarding the spot market price of aluminum: Goldman Sachs was accused of bottlenecking aluminum at Goldman’s Metro International aluminum warehouses outside Detroit, increasing customers’ delivery wait times since purchasing M.I. in 2010 from six weeks to sixteen months by first lowering prices to attract a stockpile (“50,000 tons in 2008” to “~1.5 million currently”) and then, actually, trucking a minimum daily regulatory-defined shipment amount of 3000 tons back and forth among the 27 warehouses. There were also accusations of understaffing, reduced shifts and prioritizing putting aluminum into storage over taking it out. The shuttle-shuffled delays raised a premium added to the price of all aluminum, driving up the spot market price “according to an arcane formula” even for metals bought directly from mines or refineries to bypass these warehouses. While delaying delivery the warehouses also continued charging rent on the stored metal. Perfectly legal according to current international regulations, apparently set by the London Metal Exchange.

The London Metal Exchange might need more disentanglement from the entities it is supposed to regulate. According to the NYTimes.com article, it still receives 1% of the rents collected by the ~700 warehouses it regulates around the world. Until 2012 it was owned by its member regulees, including Goldman Sachs, JP Morgan Chase, Barclays and Citigroup. Many of its metals warehousing regulations were written by a board populated by executives from banks, trading companies and storage companies. In July 2012 the L.M.E. was sold to Hong Kong Exchanges and Clearing, part-owned by the Hong Kong government, for ~$2 billion. A NYTimes.com description of the 2012 sale said it “will allow the Asian company to control the world’s largest futures trading exchange for metals like aluminum, copper and zinc, as emerging market demand for commodities remains strong.” In 2012 Hong Kong Exchanges and Clearing was supposedly hoping to get an exemption from Chinese laws preventing foreign companies from owning these sorts of metals warehouses in China.

The U.S.’s Federal Reserve Board could, said NYTimes.com, quit extending exemptions that allow banks like Goldman Sachs to invest in nonfinancial enterprises. Though the Fed’s stated conditions in allowing banks to diversify into commodities investment were “only if there was no risk to the banking system” and if the deals “could ‘reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices,'” yet many people would say its deregulation achieves the opposite effects, that big “diversified” banks’ risk management still appears to endanger U.S. and world economies and now banks’ having bought up important infrastructure might be presenting them with irresistable temptations such as artificial bottlenecking or even information advantages not all traders always refrain from using.

Update on 25 Jul 2013: The U.S. Senate’s banking committee has criticized that the Federal Reserve is not communicating well with them. However, wrote the F.A.Z., the U.S. Congress could pass its own banking reregulation rules without waiting for the Federal Reserve.

It’s unclear whether shadow trades are involved here, but it’s also unclear why everyone hasn’t gone broke if this is how they’re doing business:

“Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.”

If Goldman is indeed paying aluminum owners, fellow speculators, to rewarrant their metal and leave it in the warehouses piling up rent owed to Goldman, that might indicate some creative profits or at least useful losses are being made.

Aluminum is economically important enough that Chancellor Angela Merkel’s government has been giving aluminum refineries, notoriously high-volume electricity consumers, various electricity rebates that must be paid for by individual consumers or “ratepayers” in their home electricity bills because, Germany’s government said, the preservation of the aluminium supply was that significant for their economy as a whole.

(SHPOTT mocked.)

Außerbörslicher Schattenhandel

“Off-market shadow trading,” which der Spiegel says is also known as over-the-counter trading, done directly between speculators such as bank traders. May exceed trading in the (regulated) markets.

E.U. and U.S.A. regulators agree that they want to regulate O.T.C. trading. An F.A.Z. op-ed discussing recent U.S. Federal Energy Regulatory Commission (F.E.R.C.) fines mentioned that other U.S. financial authorities that could impose fines on international financial companies such as banks include the S.E.C. (Securities and Exchange Commission) and C.F.T.C. (Commodity Futures Trading Commission). It cited a quite-large Financial Times estimate of the size of global O.T.C. trading amounting to well over half a quadrillion dollars.

Regarding shadow-sector speculation in electricity: on 24 Jul 2013 the F.E.R.C.’s fine was upheld to London-based Barclays bank of nearly half a billion dollars to the bank (and $15 million to one manager and $1 million each to three traders) for benchmark manipulation affecting U.S. electricity markets between 2006 and 2008, including taking on-market losses in order to increase the value of off-market O.T.C. bets. Barclays intended to keep fighting the fine, however, and if the bank doesn’t pay it within the 30-day deadline the case could go to a U.S. federal court which could reset the fine. In January 2013 Deutsche Bank negotiated a settlement with the F.E.R.C. for the same electricity market gaming and received a fine of ~$1.5 million. On 24 Jul 2013 JP Morgan Chase was still negotiating with the F.E.R.C. about their fine for manipulating electricity prices in California and the Midwest; originally the settlement was said to be at nearly a billion but Chase succeeded in negotiating it down to less than one billion dollars though so far still more than Barclays’s ~$480 million.

Update on 30 Jul 2013: JP Morgan Chase’s F.E.R.C. fine for allegedly manipulating U.S. electricity markets was negotiated down to $410 million.

Regarding shadow-sector speculation in food commodities: The day before announcing its largest capital collection in its history as a mutual savings bank, on ~28 May 2013 Germany’s fourth-largest bank at the time published an open letter to the consumer advocacy organization Foodwatch.org saying their bank was joining their country’s second-largest bank and several smaller banks in pledging that they will no longer trade in or sell financial products based on agricultural commodities (such as grains). They recommended other banks also cease doing so in order to keep from driving up world food prices, remarking that investors’ demand to participate in food-based funds is low anyway. D.Z. bank said they have been and will continue to work closely with university academics to study and monitor world agricultural economics and the effects of food speculation. They requested government reregulation of both markets and of off-market trading to re-introduce “position limits” on the amount one entity, such as a hedge fund in the shadow financial sector, could wager on food-based financial products. After deregulation in the early 2000’s, “the speculators’ share in international commodity markets increased from 30% to 80%.”

At the time this D.Z. Bank letter was published, E.U. leaders intended to meet in late June 2013 to agree on regulations imposing these food-trading position limits but, said the head of the bank in question, “the financial sector” had already managed to introduce many loopholes into the drafts— “practically neutralizing the limitations on speculators,” said Foodwatch head Thilo Bode.

(Ow! ss ah BƏZZ lichh ah   SHOTTEN hond ell.)

 

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