On Monday, the Swiss competition watchdog announced it had opened an investigation into possible collusion between seven large banks to manipulate the price of gold. What does it mean for the gold market?
Despite the fact that the London gold price setting mechanism was reformed in March to bring some more transparency after the UK Financial Conduct Authority fined Barclays £26 million for manipulation of the London gold fix, accusations of manipulation keep returning. Switzerland's competition commission, known as WEKO, opened an investigation into seven banks – Deutsche Bank, UBS, Julius Baer, HSBC, Barclays, Morgan Stanley and Mitsui – to determine whether they were involved in the manipulation of the bid/ask spread, i.e. the difference between the bid and the ask price of gold and other precious metals. The move follows similar investigations by the European Commission and the U.S. Department of Justice opened this year.
How the probe could affect the gold market? Well, it should not significantly impact the price of gold, as the results of the investigation may not be available until 2017. A lot depends also on the nature and direction of the possible manipulation. Some analysts say that the impact of the probes on wider precious metals trading is likely to be muted, while others believe that it may the biggest rigging scandal in the history of the gold market. What is certain is that the gold bugs – who often claim that the precious metals market is rigged – have finally had their cause pushed to the mainstream.
Summing up, the Swiss regulator joined its American and European counterparts and opened an investigation into the possible collusion between seven large banks to manipulate the bid/ask spreads in the precious metals market. The probe should not affect the price of gold, but it may be the next step towards further transparency in precious metals market.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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