Silver price manipulation, is regulation putting a stop to it?

Silver price manipulation, is regulation putting a stop to it? by Mark O’Byrne – Gold Core

Fear of regulation may impede bank’s from manipulating London’s silver benchmark

  • New regulations in 2018 have spooked bullion banks and silver fix operators
  • Lack of liquidity in silver fix auction has lead to high volatility in the market
  • Silver benchmark has strayed from spot price multiple times since 2016
  • No new silver benchmark operator lined up to take over in the Autumn
  • No smoke without fire as actions point to silver price manipulation
  • Silver remains suppressed and at a low price for investors stocking up

Gold fixing in London at NM Rothschild and Sons began in September 1919

Simple economics tells us that markets and prices are driven by demand and supply. Unfortunately, this isn’t always the case in the silver market. However, the threat of new regulations may be putting a stop to some bullion banks from fiddling the London silver benchmark.

Silver price manipulation is always a thorny issue and one that has been taken on by academics, lawsuits, by veteran silver analyst Ted Butler and by the Gold Anti-Trust Action Committee (GATA). As we have reported previously, allegations of silver price manipulation are far past the point of rumours, in the last couple of years bullion banks have been called to account for their behaviour. Deutsche bank even agreed to settle out of court and pay $38m, in response to a class-action lawsuit.

But it seems the rising attention (and cost) of manipulation by silver bullion banks is not the only thing that is putting a stop to a behaviour that has been evident for over a decade. Reuters reported yesterday that fear of being accused by regulators of market manipulation has resulted in participating banks being reluctant to add liquidity during the daily auction.

Banks finally fear regulation

The low volume of orders and lack of liquidity has resulted in the benchmark price failing on multiple occasions to provide a fair and accurate snapshot of what is known as the ‘spot price’. The spot price is calculated based on a much wider and faster market. Huge divergences from this spot price have resulted in unexpected gains and losses, according to Thomson Reuters data, since at least January 2016.

Traditionally, the seven banks involved in the auction ensure the benchmark stays close to the spot price by adding liquidity and buying or selling silver during the auction. However, lawsuits regarding gold and silver manipulation as well as investigations into other markets such as Libor appear to have put the banks off from their usual antics for fear of drawing the attention of regulators.

Sources told Reuters that the ‘Banks are now unwilling to intervene beyond putting in orders beforehand, fearing this might be construed as price manipulation by regulators.’

As a result, unpredictable fluctuations in the silver benchmark price have plagued the market:

‘Between January 2016 and March this year volumes have risen as high as 12.9 million ounces and fallen as low as 200,000 ounces, while on seven occasions the benchmark has diverged from the underlying spot price by 10 cents or more. It has diverged by more than 5 cents on more than two dozen occasions, including five times in late March alone. This is highly unusual as the average divergence for the electronic auction is about 1 cent.’

The banks’ lack of action in the markets has reduced confidence in the market, reducing activity and increasing volatility. Evidence perhaps that the seven participating banks don’t know how to play nice and run an efficient market, when the regulators are in the shadows.

New tools please

It is not just the banks who are spooked by the regulators. The recent volatility has further complicated matters that were already threatening the future of the silver fix. Early last month the London Bullion Market Association (LBMA) announced that CME Group and Thomson-Reuters would no longer be the platform facilitators for the London Benchmark, despite both having two years left in their contracts.

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Mark O'Byrne

I founded GoldCore more than 10 years ago and it has been my passion and a huge part of my life ever since. I strongly believe that due to the significant macroeconomic and geopolitical risks of today, saving and investing a portion of one’s wealth in gold bullion is prudent. I have been an Executive Director in GoldCore since its foundation and today I am Marketing and Research Director. As our customer base grew both domestically and internationally we were receiving a steady stream of requests from our clients and wider public for detailed analysis of the precious metals market. To meet this demand, I stepped into the Research Director’s role and am responsible for helping to inform and educate our clients and followers on how to protect and grow their wealth through owning gold and silver bullion.