GATA Secretary Chris Powell has invited me to reply to his October 15
commentary --
http://www.gata.org/node/16839
-- in which he replied to my article of the 14th, wherein I rebutted an
academic study that concluded that the London gold price fix was manipulated:
http://news.sharpspixley.com/article/london-f...-is-laid-bar...
If you look at my article (and indeed previous ones) you will see that my
aim is to defend the integrity of the London gold fix as a method to derive a
fair benchmark price. My aim is not to defend the integrity of the
institutions operating the fix.
The reason for this is that I simply do not have the visibility over all fixing
members and their every trade that I would need to say that these guys are
100-percent honest. No one does.
That said, I do know that the market traders at the banks are heavily
outnumbered by in-house compliance people and it would be close to impossible
for them to do anything improper even if they wanted to. The level of
forensic investigation into any position taking is actually quite staggering.
In the absence of any evidence to the contrary I simply don't have a view
either way.
I might add that I have the same ambivalence toward GATA.
Powell described my assessment as "weak" but it's a shame that
he didn't go on to say why. I would be interested to hear his views about the
fixing process. I would love to hear how he would derive a benchmark.
For bad guys there are many other far easier ways of cheating a client
than the fix should they want to -- such as front-running. The fix has too
many moving parts.
Regarding Deutsche Bank, I understand that the bank's position is that it
has actually paid a fine for all possible sins -- whether the bank is guilty
or not -- simply to allow the bank to move beyond the crippling affect of
handling so many lawsuits. In fact the board director in charge of Deutsche
Bank's legal affairs was promptly sacked by the rest of his board for having
agreed to the settlement because of the reputational damage he had caused.
You might ask why they would chose to seek a settlement. My understanding
is that they simply wanted to move forward and were prepared to take a financial
hit to do so. This is not uncommon in legal cases. I don't doubt that, if
there were specific infringements in relation to the fix, these would have
been made public by now.
The key issue that Powell raises is whether central banks are active in
the precious metals markets -- or, to use his words, "manipulating the
price." The short answer is that I don't know for sure but I would not
be surprised.
Central bank intervention in markets is nothing new, nor is their
redefining of methodologies around data to suit their purposes -- for
example, hedonic adjustments.
Gold is often said to be the reciprocal of trust in official planners and
as such a weak gold price might seem to reflect well on them and their
policies. There are others who would see merit in a weak gold price,
including short sellers in the futures markets, physical sellers of gold, and
others.
I do worry about the ongoing desire to portray the bullion markets as
manipulated and think it is actually counterproductive. Those who are minded GATA's
way are already invested in gold. Those who are not (the remaining 99.5
percent of the population) will conclude that they should not bother with
gold because it is said to be a corrupt market. Such accusations are a total
passion killer for those who might be minded to invest.
To be clear, I am not a spokesman for the banks, nor for the London
Bullion Market Association. Like Powell, I just happen to have an opinion.
Our positions are probably not that far apart. I just prefer to deal with
known knowns and have less time or regard for conjecture.
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