Here are a few observations on the British Financial Conduct Authority's finding today that a trader for Barclays Bank manipulated the London gold fixing down one day two years ago to cheat a customer, a finding detailed by the FCA here:
http://www.fca.org.uk/news/barclays-fined-26m...urrounding-t...
1) The London gold fix, a peculiar and suspect mechanism already the target of class-action lawsuits for market manipulation, has been definitively impugned. But almost any market could have been the venue for what Barclay's did, because:
2) While the London gold fixing is not an open and transparent market and thus is more vulnerable to manipulation, the sort of manipulation in the Barclays case is not peculiar to the fixing. For with enough money, anyone can manipulate any market. That's what anti-trust law in the United States and competition law in the U.K. and European Union recognize in principle. Many investment banks have access to far more money than most traders and even access to far more money than is available to the markets in which the investment banks are trading. Some investment bank money comes effectively from government, especially when government policy is to suppress interest rates to negligible levels.
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3) Having the power of money creation, central banks have
infinite money and thus their market-rigging potential is virtually infinite -- at least until, in a price-suppression operation, the commodity price being suppressed is forced below the cost of production and supply is exhausted. Of course when market participants are willing to hold paper claims to the commodity rather than the commodity itself, as has been the case especially with gold but to a lesser extent with many other commodities as well, the supply of paper claims is infinite and so price suppression may be infinite as well.
4) It would be far more interesting if the market regulatory agencies in the United States, the U.K., and E.U. put to their own governments the sort of trading questions that have just been put to Barclays. But this won't happen because, at least in the United States, the government is fully authorized by law to trade surreptitiously in any market --
http://www.treasury.gov/resource-center/in...ges/esf-inde...
-- and because the central bank has the authority to monetize infinite government and private debt, to purchase infinite assets, and to rig the gold price:
target="_blank"
http://www.federalreserve.gov/aboutthef...d/section14.htm
As market rigging by the government is fully contemplated by law, the only thing to be done about it is to expose it. The British Financial Conduct Authority's action against Barclays for manipulating the gold market is welcome mainly for establishing that gold market manipulation is not mere "conspiracy theory" and for potentially making it a little harder for governments to rig the gold market surreptitiously with the cover of intermediaries.
Of course if governments ever have to rig the gold market in the open, as they used to do --< target="_blank"/p>
http://en.wikipedia.org/wiki/London_Gold_Pool
-- investors and gold-producing countries at last may understand that there are no markets anymore, just interventions, and may decline to be cheated as much.
