by Bron Suchecki, Perth Mint:
The announcement that Switzerland’s Competition Commission has opened an investigation into some bullion banks for precious metal prices fixing created a bit of excitement in the gold blogosphere. I find it hard to get excited. Consider this recent history of precious metal manipulation investigations and lawsuits:
March 2013 – CFTC (US) “scrutinizing whether the daily setting of gold and silver prices in London is open to manipulation”
November 2013 – Bafin (Germany) reviewing how banks participate in gold and silver price setting
December 2013 – Rosa Abrantes-Metz (US) publishes How to Keep Banks From Rigging Gold Prices in Bloomberg
December 2013 – Bafin (Germany) interviews Deutsche Bank employees as part of a probe into potential manipulation of gold and silver prices
This is by no means an exhaustive list but note that after all that the only fine levied was a paltry £26 million on Barclays and not one successful manipulation lawsuit that I am aware of.
I doubt the COMCO investigation will find much, and it is a pretty limp claim – they did not mention actual manipulation of the price up or down, just the spread between buy and sell prices. Academic Brian Lucey found a chart of historical gold market spreads below (see his blog post for more details).
Note that if you convert this dollar spread into a percentage of the spot price it has, by my rough calculations, declined 50% from 0.12% to 0.06%. Decreasing spreads reduces a bullion bank’s profit and increases the attractiveness of gold to investors by reducing their trading costs – not sure how that is anti-competitive. While I guess one could still fine banks for conspiring to reduce costs, it is hardly the sort of manipulation smoking gun people have been looking for.
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