The Volkswagen scandal is shocking the whole world and is making headlines, but in the realm of finance and markets, we are very much used to this type of manipulation. Many banks and markets are actually more toxic than the German company’s diesel engines!
Several scandals have already rocked the sector, such as the LIBOR manipulation or the rigging of the foreign exchange markets. Citigroup has been fined for the subprime scandal and BNP Paribas has been fined for having traded with countries under American embargo (in this case we could plead excessive severity, but this is another debate). However, the fines imposed on the banks don’t seem to have any dissuading effect on their continued cheating.
So COMCO, the Swiss Competition Commission, announced on September 28 the opening of an investigation into the price fixing on the precious metals market by UBS, HSBC, Deutsche Bank, Barclays, Morgan Stanley, Mitsui and Julius Baer... the elite of banking! These banks are suspected of illegal agreements on the prices of gold, silver, platinum and palladium. One of them, Barclays, has already been condemned by the Financial Conduct Authority (FCA), in England, to a 26 million pound (32 million euro) fine for manipulation of the gold market. That, of course, didn’t discourage the bank from continuing with the same practices.
Thus the financial markets are “officially” and “with benevolence” manipulated by the central banks (zero rates, QE...) and illegally, in secret, by the largest banks... How can one trust the prices on those markets?
We should note that, once again, gold is implicated in this manipulation case. We, being for physical gold ownership, take this as a tribute: it means that the precious metal is still important and plays a central role; otherwise the manipulators wouldn’t be interested in it! That being said, they play with paper gold like they were dancing atop a volcano. On the COMEX, the main futures market in the world, the ratio is over 200 (see this article)! There are 200 ounces of paper gold circulating for each ounce of physical gold held in this market’s vaults. In other words, if only 0.5% of COMEX investors were to ask for delivery of their gold, the system would go bust. Let’s rest assured... this situation is not illegal and there is no investigation going on. It’s a good thing our bankers are not automobile manufacturers, because we would end up in the ditch!
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.