A mining and exploration retrospect for March 9 to 15, 2013
by Greg Klein
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Getting a fix on “the fix”
“When the Libor scandal broke, my first reaction at the time was, ‘Wait ‘til they look at gold.’” Dow Jones Newswires reporter and Wall Street Journal contributor Tatyana Shumsky discussed “the fix” in a Thursday WSJ Live interview after breaking the news that the U.S. Commodity Futures Trading Commission was looking into the way gold prices are set.
In a Thursday follow-up, Reuters explained the process this way:
The subject of gold price manipulation hit CNBC,
Reuters and the Wall Street Journal this week.
“Currently, gold-fixing happens twice a day by teleconference with five banks: Bank of Nova Scotia-ScotiaMocatta [BNS], Barclays Bank Plc (BARC.L), Deutsche Bank AG (DBKGn.DE), HSBC Bank USA, NA and Société Générale (SOGN.PA). The fixings are used to determine prices globally.
“At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay that to their customers and, based on orders received from them, instruct their representatives to declare themselves as buyers or sellers at that price. The gold price is adjusted up and down until demand and supply is matched at which point the price is declared “fixed.” The fixings are used to determine spot prices for the billions of dollars of the two precious metals traded each day. Buyers and sellers can get insight on price changes and the level of interest during the fixing process. They can cancel, increase or decrease their interest based on that information.”
According to Ross Norman, owner of bullion broker Sharps Pixley, “The fix is open, consequential, transparent and has stood the test of time,” he told Reuters. “It’s not open to manipulation in the same way as Libor.” But Shumsky told WSJ Live, “To even deal with these banks, you have to have 20, 50 million dollars in gold alone.”
CFTC head Scott O’Malia downplayed his office’s interest. “I think we’ve had a couple of conversations. We’re looking at energy, indexes, prices, how they’re set,” Reuters quoted him. “We’ll look at all of the range of index-setting.”
Shumsky acknowledged, “It is very early days right now. But it is interesting that they’re looking at it because a lot of commodities markets are opaque like this. You have coal, iron ore, platinum….” And silver, the interviewer added.
GATA on CNBC
Chris Powell, on the other hand, said he’s “always suspicious” of the CFTC. “This is not an investigation,” the Gold Anti-Trust Action Committee secretary/treasurer said in a Thursday CNBC interview. “They’ve been investigating silver for four and a half years and have not issued any report…. The attorney general of the United States said before the Senate judiciary committee a few days ago that the big banks and investment houses in the United States are not only too big to fail, they’re too big to jail.”
An interviewer asked, “What needs to be done to make the market more transparent, less susceptible to manipulation? Do we need to scrap the gold fix?”
“No, I think we need to commit journalism,” Powell responded. “You simply have to ask the central banks very specific questions about gold, as GATA has done over the years … what are you doing in the gold market today? Show us your gold books, your gold swaps, your gold leases. What is the purpose of your trading secretly in the gold market?”
While Eastern central banks keep buying gold, their Western counterparts swap, lease and sell the stuff to protect their currencies, he maintained. “None of us alive today has ever seen a free gold price.”
CNBC buried the video within a story that quotes Jeffery Christian of the commodities research firm CPM Group, who said he thinks GATA are “outright liars … pretty much what they do is nonsense.”
Who’ll get Venezuela’s gold?
As for gold repatriation, it might prove tumultuous to Venezuela. A Wednesday Reuters commentary by Peter Christian Hall said the 160 tons President Hugo Chavez brought home in 2011 would be worth about $9 billion today. But during the first eight months of 2012 about $550 million was sold. “Did further sales follow over the past six months, with proceeds partly paying for the public largesse that helped fuel Chavez’s victorious up-from-the-sickbed presidential run?” Hall asked.
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