Tuesday, March 4, 2014

The London Price Fix Is Rigged - Here's Why Ross Norman Is Full Of It

In a mainstream media disclosure that took the gold investment world by surprise, Bloomberg published a report - Article Link - last week which contained data from an academic study that showed that the daily London gold price fixing has been manipulated for at least 10 years. While this is not new information to many precious metals investors, it is the first time that an establishment news outlet has exposed the truth about the widespread and blatant Government-sponsored manipulation of the precious metals market.  It should be noted that the Financial Times also published this report but then retracted and deleted the article.

The London daily gold fix is an event that has been setting the price of gold twice a day since 1919. With the advent of computerized market trading and the gold/silver futures market (1974), it would appear that the London fix is no longer necessary as a mechanism of "price discovery." As we will see, the London fix still exists because it is used by the bullion banks as an overt market manipulation mechanism.

The price "fixing" is conducted by 5 individuals who work for their respective bullion banks. These individuals jointly decide what the "spot" price of gold should be twice a day, once in the morning and once in the afternoon (London time). They committee is allowed to communicate with market participants and their respective banks are permitted to continue trading gold and gold derivatives while these individuals decide what the price of gold should be.  Theoretically this price as "fixed" is determined to be the price which will clear the market of all buy and sell orders up to that point.  Theoretically, it provides a "benchmark" price for the spot price of gold.  Incredibly, the time of fix occurs during the period of time when the Shanghai Gold Exchange, the largest physical gold market in the world, is closed for the day.

But how can a closed system like this possibly operate objectively? The gold fix system is inherently ingrained with the conflict of interest and moral hazard the accompanies any system governed by collective "judgment." The Bloomberg News article details a study done by NYU professors which showed that between 2004 and 2013 large price moves during the afternoon "fix" were moves lower at least 66% of the time. In 2010, the large moves were negative 92% of the time.

From their work, the authors concluded that the market in all probability was manipulated by the banks whose representatives establish the price fix every day: "There’s no obvious explanation as to why the patterns began in 2004, why they were more prevalent in the afternoon fixing, and why price moves tended to be downwards" - Rosa Abrantes-Metz, one of the authors of the study.

As it turns out, Ross Norman, CEO of the well-known London-based Sharps Pixley bullion retailer issued a rebuttal to the Bloomberg article and in defense of the London fix (LINK).  Ironically, in his attempted defense of the gold fix process, Norman inadvertently exposes the system's inherent flaws, thereby showing the reader how the London fix committee can easily manipulate the market. In fact nearly every point of assertion about, and defense of, the London fix process is embedded with half-truths or outright lies.

In response to the fact that there are unusually large moves during the "fix" period, Norman explains: "the fix is a price discovery process and as such large buying and selling orders collide here - large moves are therefore to be expected. In fact, the mere fact that it does move confirms some differences in opinion over fair value between the clients dealing in the fix - actually it supports the notion of the integrity of the process."

This explanation is is patently disingenuous. Gold trades in either physical form or derivatives form (futures, forward) nearly continuously during the trading week. The "price discovery" process occurs inherently with every buy/sell transaction. To say that it is only at the time around the p.m. London fix that large orders to buy and sell constitute "price discovery" is entirely misleading. In a continuously functioning market, orders of all sizes are executed and "price discovery" occurs with each trade execution. A committee of five individuals is not needed and collective "judgment" about what the price should be is not required.

In his second point of defense of the London fix, Norman makes these comments: "the fix is used by official institutions (like Central Banks) and many major miners who all require an "objective" and published price because they need to [be] more accountable than say (sic) a proprietary trader. The spot price for example is neither of objective (sic) nor published. Selling by miners in size every day and invariably outweighs (sic) any official buying which is typically large but infrequent. Hedging or financing for the miners have will often (sic) link their financial arrangements to the gold fix."

Just as a note, it's interesting that Norman decided to put quotes around the word "objective." Clearly the London fix is anything but "objective," since by it's very nature it defies the objectivity and price discovery mechanism of a continuously functioning market. I'm not sure why a "fixed" price needs to be "published" at all.  At any given time during the 23 hour trading period of each business day gold trades in either physical or derivative form (futures, forwards). Anyone can go online and "discover" the current trading price of gold.

To be perfectly clear about this, any price which is determined in the market by a buyer and seller is inherently more objective and visible than is a price which is "fixed" by a committee of five individuals saddled with inherent conflict of interest. Mining companies and Central Banks are free to use the standard market mechanisms to execute their trades. To say that a committee operating out of view of the market can determine an official "spot" price is either unintentionally disingenuous or an outright lie. If anything, the London fix process prevents the true price discovery process of an open and free market.

Norman also claims the London fix conference call is not private and is open to clients. Do you have access to this call? Our firm does not. I don't know of anyone who has access to this call. While the price fix committee of five may have information about the large buy and sell orders that are about to "collide" - to use Norman's term - the market as a whole does not. An efficient market functions most efficiently in its price discovery process when as much information as possible about buyers, sellers and size is immediately disseminated to the entire market. The London price fix system not only prohibits the dissemination of information that might help the market achieve its price discovery goals, it leaves the discretion as to the "best" market clearing price at that point in time up to the committee of five who may or may not be on the phone with their best preferred LBMA member clients or their own banks.

Again, to reemphasize this point because it can not be emphasized enough, the price fix committee members have de facto conflict of interest by the very fact that the banks they work for have large capital positions in gold and silver. Furthermore, while detailed LBMA position data is not made available to the public, we know that these banks run large net short positions on the NY Comex. To say the least, the banks have a motivated interest to see a lower price fix every day.

Norman next tries to defend against the findings of the study that the price of gold at time of the p.m. fix is fixed lower a majority of the time - with the statistical evidence overwhelmingly in support of this conclusion - by explaining that if London gold dealers (i.e. the bullion banks) "had consistently shorted gold as maintained" they would have suffered massive losses.

This assertion is absurd because it assumes that the big bullion banks are always long gold. Yet, we know from over a decade of Comex data that the big bullion banks have run massive short positions in Comex gold futures. We don't know whether the big banks are net long or net short on the LBMA because the LBMA does not publish enough information about the big bank forward contract and bullion positions. In fact, from the size of the historical net short position of the big banks on the Comex, and the accompanying trading turnover of these positions, any bank with access to information about the level of the price fix before the general market sees it has the ability to net rapid and riskless trading gains on a daily basis.

Finally, Norman tries to deflect the issue entirely by opining on the "vested interest" of Bloomberg in publishing this article and ends by scolding the organization ("shame on you...for lack of journalistic discretion and judgment...and failure to ask the right questions").

As Norman tolls this bell of scorn and disdain for Bloomberg News, ironically he's ringing it at himself, as Norman's disingenuous defense of the LBMA gold price fix surreptitiously exposes the reasons why the gold fix process is highly flawed. Indeed, it is a system of price determination which is susceptible to the moral hazard and market misconduct which accompany any market system in which price level is determined by a small committee individuals, all of whom have a high level of inherent conflict of interest.

One last point, Norman is correct that Bloomberg fails to ask the right questions. Here's a small sampling of the right questions: 1) Given that the gold market trades nearly continuously during the business week, either by auction or computer, why is the London fix needed at all?  2) Why does the fix occur after the Shanghai Gold Exchange, the worlds largest physical bullion market, has closed for the day?  3) Why are the members of the price fix committee allowed to be representatives of the big bullion banks? 4) if #2 is unavoidable, shouldn't the members be from organizations which do not run capital positions in gold and silver or stand to benefit from inside knowledge about the price fix? 5) Why doesn't the LBMA publish more specific and detailed data about the forward contract and bullion positions of its member banks?


  1. As Foghorn Leghorn would say "I say boy, I say I believe they let the fox into the hen house".
    The only way that this will ever be resolved is either the Comex runs out of gold or price discovery is made in Shanghai. Until the time that either of those events occurs it will be business as usual.

  2. If this is and was a known fact for years, nothing was/has been done. Seems like nothing will most likely be done.

    1. That might be the case but there's a few new players on the field and it's growing increasingly obvious that they are getting the ball allot more often. That group is the BRIC nations. London's toast along with the U.S. ~ time will tell.

  3. 1. I don't believe the bullion banks are long in the London OTC market. This doesn't make sense. If they are long London spot and short Comex futures, they must betting there is a spread between the 2 and the 2 prices will converge. But they are short Comex futures for more than 10 years and then they must be long London spot for 10 years. Then this means the 2 prices haven't converged for 10 years. Then what's the point of this trade?
    2. The Shanghai Gold Exchange has a night session between 21:00-2:30 Beijing Time (GMT +8) so the Shanghai Gold Exchange opens when the after fix occurs. You'd better change that part in your article, Dave.
    3. The bullion banks' short position on the Comex in my opinion is NOT their own. They are just proxies. It's the Fed/Exchange Stablisation Fund that is short on the Comex.

  4. PDAC 2014: Why Goldfinger should increasingly be considered non-fiction – Williams

    Grant Williams argues that the shift of the yellow metal from west to east will make it increasingly difficult for western nations to regain their gold holding.

    According to Williams, not only has fabrication and investment demand in the Far East, Middle East and India grown five fold since 1984, in the west such demand is below 1984 levels and has plunged over 60% since 2004 . And, importantly over this period, physical gold exchanges sprung up around the world, but almost entirely in the east.

    This shift has also taken place within the central bank segment of the market with western central bank holdings falling 30% from their peak, while eastern central banks have, since 1950, grown gold reserves by 1000%.

    The amount of physical gold delivered through COMEX has fallen in the last three years, which is in stark contrast to Shanghai, which in 2006 was actually less than on COMEX, has surged over 1000%, Williams explained.

    And, he says, if one excludes the production from Russia and China, neither of which sell their mined gold onto the open market , then withdrawals on the Shanghai exchange exceeded total global mine production in 2013.

    “Does that sound like the type of situation that can continue for much longer without higher prices,” Williams asked.


  5. Barclays, Deutsche Bank Accused of Gold Fix Manipulation

    Kevin Maher, a New York resident who says he bought and sold gold and gold futures and options, sued yesterday in Manhattan federal court claiming the five banks overseeing the century-old benchmark colluded to manipulate it.

    Maher’s complaint cites press reports, including a Bloomberg News story last week on a draft paper by two researchers showing what they said were unusual pricing patterns connected to the gold fix. The paper was the first study to raise the possibility that the banks, which also include Bank of Nova Scotia, HSBC Holdings Plc (HSBA) and Societe Generale SA (GLE), may have been actively working together to manipulate the benchmark.

    Authorities around the world, already investigating the manipulation of benchmarks from interest rates to foreign exchange, are examining the gold market for signs of wrongdoing.

    Deutsche Bank, Germany’s largest lender, said in January it would withdraw from the panels setting the gold and silver fixings. German financial markets regulator Bafin interviewed the bank’s employees as part of a probe into the potential manipulation of gold and silver prices. Britain’s Financial Conduct Authority is also scrutinizing how prices are calculated.

    Maher is seeking to represent a class of all investors who, from 2004 to now, held or traded gold and gold derivatives that were priced based on the gold fix or who held or traded COMEX gold futures or options. He’s seeking unspecified damages on behalf of the class. Damages may be tripled under U.S. antitrust law.


  6. Hi,

    I wanted to give you a heads up that BadCredit.org has named you as one of the year's "10 Best International Finance Blogs." The rankings were published this morning, and we'll be promoting it on-site and through other social media channels over the coming days.

    You can view your write-up here: http://www.badcredit.org/10-best-international-finance-blogs/

    You have the bragging rights, so feel free to share the news on your blog and with your followers! Let me know if I can be of any help in promoting the news.

    Can I send you a badge recognizing that you made the list?

    Have a great day,

  7. Fed Nominee Stanley Fischer Has a Citigroup Problem

    By Pam Martens: March 4, 2014

    There are surely some veteran lawyers at the Securities and Exchange Commission (SEC) hoping the nomination of Fischer has been scuttled. The thought that Stanley Fischer, a former Vice Chairman of the serially corrupt Citigroup, could become Vice Chairman of the Federal Reserve, a regulator of mega banks like Citigroup, is not a source of comfort. Fischer was nominated for the post by President Obama, whose devotion to failing up on Wall Street regularly sets new heights.

    As if as on cue, news broke just yesterday that Federal prosecutors have issued grand jury subpoenas to Citigroup in a money-laundering investigation, a topic with which the bank is intimately familiar.

    During Fischer’s stint at Citigroup, from February 2002 through April 2005, he “amassed a personal fortune of between $14.6 million and $56.3 million” according to Bloomberg News. During that same period, Citigroup was repeatedly charged with fraud and embarked on its own exotic financial shenanigans that would end up collapsing the firm in 2008.


  8. The “Dirty Little Secret”
    Author : Bill Holter

    I ask you this, with respect to imposing sanctions, what exactly can Washington do that would injure Russia? Could they freeze deposits? Does Russia have enough capital outside of their control which if lost, would make them think twice and withdraw from Ukraine? Do we transact enough business with them to make a difference? Is Europe going to say, “No, please don’t send us your natural gas. We’d rather freeze?” One must also wonder what would happen if Mr. Putin in turn asked for payment of said natural gas in gold, how the Germans might respond. “We can pay but we’ll have to wait 7 years until the NY Fed sends us OUR gold back?”

    I want to point out that this has a very high possibility of being our “Achilles heel” moment. I say this because those running the circus in Washington know that the gold is gone and running low. Mr. Putin knows this as do the Chinese. In fact, I believe that everyone knows and also that everyone knows that everyone else knows and this is exactly why we cannot impose sanctions. Mr. Putin will do whatever it is that he chooses because he knows that we cannot do anything in return. Nothing militarily nor financially. Is he “bluffing?” I don’t think so because he looks to be actually “re assembling” the old Soviet Union. In my opinion, he is doing this out in the open and daring the U.S. to respond or retaliate because he knows that if we act at all, we end our own charade.


    1. America's Long War Against Humanity - Michel Chossudovsky Published on Mar 5, 2014
      Rosa Luxemburg Conference, Berlin, January 11, 2014.

      The event was organized by the German daily "junge Welt". This year, the Rosa Luxemburg Conference marked the commemoration of the 100th anniversary of the First World War.

      Worldwide militarization is also part of a global economic agenda, namely the application of the neoliberal economic policy model which has led to the impoverishment of large sectors of the World population.

      The world is at the crossroads of the most serious crisis in modern history. The US has embarked on a military adventure, "a long war", which threatens the future of humanity.

      This "war without borders" is being carried out at the crossroads of the most serious economic crisis in World history, which has been conducive to the impoverishment of large sectors of the World population.

      The Pentagon's global military design is one of world conquest. The military deployment of US-NATO forces is occurring in several regions of the world simultaneously.

      The concept of the "Long War" has characterized US military doctrine since the end of World War II. Worldwide militarization is part of a global economic agenda.

      The text presented at the conference, Imperial Conquest: America's "Long War" against Humanity, is available on Global Research:


      good listen.......................

  9. Junior mining companies face extinction: Goodman

    Troubled economies in Europe and the United States are contributing to the fear, he said.

    This isn't stopping Goodman from investing in the right exploration company - he believes growth in China will continue to fuel demand for raw materials.

    "Ore reserves in the ground are not a bubble, they are scarce and valuable," he said. "I've heard of the empty buildings in China, there are also a lot of full buildings … and they will all get filled."


  10. A vast hidden surveillance network runs across America, powered by the repo industry

    Few notice the “spotter car” from Manny Sousa’s repo company as it scours Massachusetts parking lots, looking for vehicles whose owners have defaulted on their loans. Sousa’s unmarked car is part of a technological revolution that goes well beyond the repossession business, transforming any ­industry that wants to check on the whereabouts of ordinary people.

    An automated reader attached to the spotter car takes a picture of every ­license plate it passes and sends it to a company in Texas that already has more than 1.8 billion plate scans from vehicles across the country.

    These scans mean big money for Sousa — typically $200 to $400 every time the spotter finds a vehicle that’s stolen or in default — so he runs his spotter around the clock, typically adding 8,000 plate scans to the database in Texas each day.

    “Honestly, we’ve found random apartment complexes and shopping ­plazas that are sweet spots” where the company can impound multiple vehicles, explains Sousa, the president of New England Associates Inc. in Bridgewater.

    But the most significant impact of Sousa’s business is far bigger than locating cars whose owners have defaulted on loans: It is the growing database of snapshots showing where Americans were at specific times, information that everyone from private detectives to ­insurers are willing to pay for.


  11. If Gold is on a leash then Silver is being held in a deep, dark dungeon somewhere. Silver has not even made a new nominal high for over 30 years. Silver hit $21 in March, 2008 and here we are 6 years later at the same level. That's the downside.

    The upside is Sprott has already shown the world that Silver supply is hand-to-mouth. It took the mines and refiners almost a year to fill his order. Silver will eventually break loose to the upside with shock and awe and make the A-Bomb look like a pop gun.