By Ross Norman, CEO
Sharps Pixley Bullion Brokers, London
Sunday, October 16, 2016
GATA Secretary Chris Powell has invited me to reply to his October 15 commentary —
— 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:
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.