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Saturday, May 24, 2014 11:30 AM

Regulator Fines Barclays for Gold Manipulation: Permanent Price Suppression?

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A couple of readers asked me to comment on the news Regulator Fines Barclays Over the Pricing of Gold.

A British financial regulator has fined Barclays $43.9 million after accusing a former trader at the bank of improperly influencing gold prices at the expense of a customer.

The F.C.A. also fined the former Barclays trader, Daniel James Plunkett, £95,600 and barred him from participating in any regulated financial activity. The authority said Mr. Plunkett, who settled with it, had profited at the expense of a customer, who was later fully compensated by Barclays.

Mr. Plunkett’s improper conduct occurred on June 28, 2012, the day after the regulator and United States authorities announced a $450 million fine against Barclays for improperly influencing global benchmark interest rates, including the London interbank offered rate, or Libor, the regulator said.

“A firm’s lack of controls and a trader’s disregard for a customer’s interests have allowed the financial services industry’s reputation to be sullied again,” Tracey McDermott, the F.C.A. director of enforcement and financial crime, said in a statement. “Traders who might be tempted to exploit their clients for a quick buck should be in no doubt — such behavior will cost you your reputation and your livelihood.”

The process of setting the benchmark price for gold in London dates to 1919. It is set twice a day by five banks that serve as market makers, according to the London Bullion Market Association. Those banks are Barclays, Société Générale, Deutsche Bank, Scotiabank and HSBC.

The silver fixing process in London, which has only three participating banks, is set to end in August after Deutsche Bank leaves the panel.

Deutsche Bank said this year that it would withdraw from fixing gold and silver prices as part of its plan to exit some commodities businesses because of regulatory concerns.

On Friday, the F.C.A. accused Mr. Plunkett, a director on the Barclays precious metals desk, of placing orders intended to drive down the price of gold during the 3 p.m. fixing period in London on June 28, 2012. Doing so allowed Barclays to avoid a $3.9 million payment to customer on an options contract that was tied to the price of gold during that period, the regulator said.

As a result, Mr. Plunkett’s trading book, excluding hedging, recorded a profit of $1.75 million. Mr. Plunkett was responsible for pricing products linked to the price of precious metals and managing Barclays’s exposure to those products.
Gold Manipulation Details

ZeroHedge has specific details of what took place in "I Am Hoping For A Mini Puke": Details Of Barclays' Gold Manipulation

LIBOR Manipulation, Euribor manipulation

Barclays was the first to admit guilt in manipulating LIBOR, but numerous banks were guilty. The BBC has an interesting article on the Timeline of the Libor-Fixing Scandal.

The Financial Times notes Euribor manipulation involving HSBC, JPMorgan and Crédit Agricole. For details, please see Brussels Charges Banks for Euribor Fixing.


No one should be shocked by this. Manipulation occurs all the time, in both directions, by all the big players, in numerous markets.

Guess what would have happened if Plunkett's client had $10 million in PUTs betting the price of gold would have declined. Does anyone think Plunkett would not have done what he could to force the price of gold up?

Although the recent spikes at illiquid times have been to the downside, details of how that "fixing" occurred, still support my two basic theories.

  1. The Fed is not behind the manipulation
  2. The motive is profit, not a permanent price-suppression conspiracy

Mike "Mish" Shedlock

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