U.S. investigates manipulation of gold price

U.S. investigates manipulation of gold price
The U.S. regulator Commodity Futures Trading Commission is informally investigating the way the gold price is compiled in London. In doing so, the watchdog will closely examine whether the gold price is being manipulated, the regulator told The Wall Street Journal.

A select group of banks (Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale) determine the spot price for physical gold in London twice a day, expressed in a troy ounce (31.1 grams). The U.S. watchdog is looking at several cases. One of these is whether the gold and silver prices are composed transparently enough. In 2008, after several complaints, the CFTC already conducted an investigation into the silver price.

This news is not unexpected. On 26 February, Bart Chilton of the CTFC stated that the idea that manipulation is done on such a scale (concerning Libor) should raise the question of whether there is something similar going on with other benchmarks. A few months ago, several banks, including Rabobank, came under fire for manipulating the Libor rate.

Fed intervenes in gold market
This message comes after news broke that economist Paul Craig Roberts, deputy secretary of state under President Reagan in the 1980s, said that the Federal Reserve had put a cap on the price of gold and that it was deliberately suppressing it. 

According to Paul Craig Roberts, this is done by placing uncovered short positions on the 'paper' gold market. This gives other parties the opportunity to speculate on a price drop. "By placing large amounts of short positions, the physical price of gold can be kept lower." Paul Craig Roberts argues that when gold and silver prices rise against the dollar, it is difficult for the Fed to keep interest rates low and Treasury prices high.

This is explained by the fact that if everyone thinks that the dollar is falling, dollar-related government bonds will become less attractive. "If the value of the dollar falls and the Fed loses control over interest rates (the bank wants to keep interest rates low in the coming years), then the U.S. financial bubble will burst," said the former Treasury secretary.

Source: Financial Telegraph