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What Bafin's König really said about precious metals manipulation

Thursday, January 16, 2014 20:06

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The gold blogosphere is getting all excited by this Bloomberg article on comments by the President of Germany’s financial supervisor which they presented (spun?) as “possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal”. Some goldbugs are spinning the spin as if Germany’s supervisor stated that the gold price is manipulated.

So I did something rare in the gold blogosphere and went looking for the source. Thanks to journalist Ananthalakshmi at Reuters, here is what König actually said, via Google translate:

“Another issue holding us into the new year, the fidelity: the accusations of manipulation around important reference rates. Were initially LIBOR, Euribor & Co. in focus, also allegations were later loudly in the determination of reference values for currency and precious metals markets, it was not received with the right things. These allegations are particularly serious, because such reference values are based – unlike LIBOR and Euribor – typically on actual transactions in liquid markets and not on estimates of the banks.

That this topic in the public beats so high waves, is understandable: It is the financial economy is dependent on the confidence of the general public that it is powerful and it makes honest work. The central reference values seemed beyond doubt – and now the suspicion is in the air, they had been manipulated. Supervisors are busy, work up the past, which is far from trivial and will take some time to complete world.

…

Who will keep an eye on that these private control bodies are actually independent? And to check if Referenzzinsätze be determined in an honest manner such instances? I have my doubts. The markets for money market operations, foreign exchange and precious metals are decentralized. Trading takes place on a large scale rather than bilaterally and not traded on exchanges or exchange-like platforms. Private supervisory bodies may therefore observe and monitor only a relatively small part of the market.

We must therefore go a step further market transparency and market control are only possible if the countless streams are centralized in the markets concerned. One therefore would have to trade in these markets move as far as possible in a transparent and directly or indirectly state-supervised trade places. What is possible with over-the-counter derivatives should also be possible in the related spot markets.”

So she just made reference to “allegations” and “suspicions” about manipulation and that these allegations are serious because these reference rates are based on actual trades, not estimates like LIBOR. Not really much new news in this.

I have noted that Bloomberg has been running pretty hard on this story, even organising academics to comment on it. It is worth noting that the allegations are around the WM/Reuters FX fixes. Hmm, nothing maybe to do with the fact that Reuters is a competitor of Bloomberg and that it has a dominant position in the FX reference rates area?

I would also note that the “supervisors are busy” and it “will take some time to complete” the work. Now where have goldbugs heard that before? That’s right, the infamous CFTC silver investigation. That certainly took “some time” to complete, and how did that work out?

Certainly, the extent of the LIBOR manipulation means I would not be surprised if collusion between precious metals dealers is revealed, but the CFTC experience should caution goldbugs against counting their chickens before they are hatched. Actually, by the excited blogging and twittering on it, it may be more accurate to say they are sitting at the table with knife and fork licking their lips in anticipation of PM Manipulation Chicken for dinner. Based on past experience, they could go hungry for a long time.

PS – note the reference to decentralised precious metals markets and how the OTC spot market should be moved into state-supervised exchanges. Do you think that would just stop at the professional market and not be extended to cover your retail sales? Goldbug may want to be careful celebrating and promoting these supervisors and their agendas as they may end up being the chicken.

Source: http://goldchat.blogspot.com/2014/01/what-bafins-konig-really-said-about.html

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