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Swiss Regulators Suspect Gold, Silver Manipulation

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Swiss Regulators Suspect Gold, Silver Manipulation

moneymanSurprise, surprise: Another regulatory agency is looking into whether or not a group of banks colluded to manipulate precious metal prices. Or, it's yet another case of What's New?

The Swiss competition commission, the regulator that oversees its financial system and ensures that companies aren't violating anti-trust rules about collusion and unfair practices, said it believes there may have been questionable activity in the precious metals trade involving 7 of the world's biggest banks.

The authorities gave no indication of what individual trades where in question, nor the amount of money involved. Even an explanation for how the potential violations were brought to light is being withheld.

Although this is far from the first time that major banks have been investigated for manipulating gold or silver prices, it is the latest such case—implying that banks have again been caught in misdeeds since the last time that fines and penalties for precious metal manipulation were handed down. In addition to gold and silver (which are much more popularly traded), platinum and palladium prices have also recently been shown to have been unduly influenced by a group of jewelers.

It's still been less than one year since the gold fix and the silver fix—the mechanisms used to determine a daily global price benchmark for the two metals—were revamped after the price-setting process came under fire for being opaque and collusive in nature. Many are hoping that the new electronic price fixes, although very similar to the original process that was used for over 100 years, will offer more transparency and more accurate benchmarks.

Naming Names

The seven banks involved in the regulatory probe are the following:

  1. UBS (NYSE:UBS; SWX:UBSN; VTX:UBSG)
  2. Julius Baer Group (VTX:BAER)
  3. Barclays (NYSE:BCS; LON:BARC)
  4. Deutsche Bank (NYSE:DB)
  5. HSBC (NYSE:HSBC; LON:HSBA)
  6. Mitsui (NYSE:SMFG) and
  7. Morgan Stanley (NYSE:MS)

gold-investigationThe director of the Swiss competition commission, Patrik Ducrey, said he expects the investigation to conclude sometime next year, or perhaps in 2017.

The maximum possible fine that the banks can face under Swiss law is equivalent to 10% of the firm's revenue.

Blatant Manipulation

With how frequently banks and other institutions have been coming under fire from the authorities for engaging in unethical practices as it relates to precious metals prices, the average observer must assume that the banks aren't stupid. Why continue to accrue fines for something unless it's making you more money than is lost by paying the fine?

It seems likely that the banks know full well what they are doing, and simply use a cost-benefit analysis to determine whether or not incurring nine-figure penalties makes their manipulative practices worth it: if there are net gains to be had once the fines are accounted for, then you had better believe that the banks are willing to engage in whatever shady activities will turn a profit.

Moreover, when nearly all of the public has a distrust of banks to begin with, it doesn't much matter that reputations will be destroyed by the negative headlines associated with big manipulation fines. When sentiment toward banks has already hit rock-bottom, they may be thinking, What do we have to lose?

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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