GOLD ANALYSIS

LIBOR scandal brings gold price manipulation once more to the fore

Manipulation of all things financial, including gold, has been highlighted by the revelations about the fixing of the LIBOR. Governments, central banks and financial institutions all stand accused, but do they care?

Author: Lawrence Williams
Posted: Thursday , 12 Jul 2012

LONDON (Mineweb) - 

There has been much written about the latest financial manipulation by global bankers of LIBOR - The London InterBank Offered Rate which is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. It is the primary benchmark, along with EURIBOR (The European InterBank Offered Rate) for short term interest rates around the world and is calculated for ten different currencies and 15 borrowing periods ranging from overnight to one year and are published daily after 11 am (London time) by Thomson Reuters. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. The global significance of the rate should not be underrated with estimates suggesting that at least $350 trillion in derivatives and other financial products are tied to the LIBOR, which makes the fine imposed on Barclays for its role in manipulating the rate just a tiny slap on the wrist.  A fraction of a percent on this size of figure means potential gains across the financial sector of billions of dollars - so why is anyone surprised that the mechanism might be manipulated in this way?

It is certain that Barclays is not the only institution involved in this rate rigging - indeed it is already beginning to look as if governments and central banks - even the U.S. Fed - may all have colluded, or at least turned a blind eye, to these manipulations - sometimes with a view to protecting the global banking system against collapse.

But how deep does this financial malpractice go?  Fictional character Gordon Gekko's much misquoted financial mantra - ‘Greed is good' (the actual quote is "Greed, for lack of a better word, is good. Greed is right. Greed works") - from the film Wall Street suggests Hollywood may have scratched the surface of the financial culture underlying much of the system back in 1987 - and this culture is almost certainly even more prevalent today.

Indeed, there is the strong suspicion that in today's financial world everything is subject to manipulation by governments, central banks and financial institutions.  For the governments and the central banks this may take the form of currency manipulation, statistical manipulation - indeed manipulation of anything to try and present the administrations in the most favourable light and keep the population on side.  What is Quantitative Easing, or Operation Twist if not manipulation of markets?  Pump more and more money into the markets and, hopefully, the stock market remains healthy, unemployment levels are not catastrophic and the general public kept in the dark over the true state of affairs.

What of gold and silver?  Two very different animals in the manipulation game, although the results may be much the same.  Silver does not have the monetary attributes of gold nowadays and is a relatively small market so particularly prone to price manipulation by the investment banks and other big financial institutions working on the ‘greed' principle, lining their own pockets and contributing to the mega-bonuses enjoyed by senior personnel within these organisations. It seems that anything aimed at preserving these massive pay packets for individuals is acceptable.  Just don't get caught in anything which might contravene the law!

Gold may be a different matter.  The powers that be and their allies deny price manipulation of the yellow metal, but as it is perceived as an indicator of the value of fiat currencies worldwide, there is every reason for some governments and central banks at least to exert a degree of control over the gold price as they also openly do with currencies.

Indeed the idea of gold price manipulation, once the preserve of the much derided GATA  - the Gold Anti Trust Action Committee - (derision is one of the principal tools in the armoury of those wishing to diminish the views of organisations that try to expose wrongdoing) is now beginning to make an appearance in the mainstream press and among the most respected of financial commentators - take this headline from the UK's Daily Telegraph only yesterday - "The price of gold has been manipulated. This is more scandalous than LIBOR". 

Mark O'Byrne also writing yesterday on GoldCore had this to say: "Similarly, the gold market has the appearance of a market that is a victim of "financial repression.  Given the degree of risk in the world - it is arguable that gold prices should have surged in recent months and should be at much higher levels today. The gold market has all the hallmarks of LIBOR manipulation but as usual all evidence is ignored until official sources acknowledge the truth. However, like LIBOR the gold manipulation 'conspiracy theory' is likely to soon become conspiracy fact. "

He goes on to say: "It will then - belatedly - become accepted wisdom among 'experts.' Experts who had never acknowledged it, failed to research and comment on it or had simply dismissed it as a "goldbug" accusation. Financial repression means that most markets are manipulated today - especially bond and foreign exchange markets. Many astute analysts are asking today - why would the gold market be completely immune to such intervention and manipulation? The last thing insolvent banks and governments want is a surging gold price."

The fact is that virtually all financial markets are subject to manipulation, or attempted manipulation, either from the ‘greed' perspective or from the ‘government knows best and we can bend the rules with impunity' perspective.  Was it ever thus and can it ever be reined in?