17 January 2014

What Bafin's König really said about precious metals manipulation

The gold blogosphere is getting all excited by this Bloomberg article on comments by the President of Germany's financial supervisor which they presented (spun?) as "possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal". Some goldbugs are spinning the spin as if Germany's supervisor stated that the gold price is manipulated.

So I did something rare in the gold blogosphere and went looking for the source. Thanks to journalist Ananthalakshmi at Reuters, here is what König actually said, via Google translate:

"Another issue holding us into the new year, the fidelity: the accusations of manipulation around important reference rates. Were initially LIBOR, Euribor & Co. in focus, also allegations were later loudly in the determination of reference values ​​for currency and precious metals markets, it was not received with the right things. These allegations are particularly serious, because such reference values ​​are based - unlike LIBOR and Euribor - typically on actual transactions in liquid markets and not on estimates of the banks.

That this topic in the public beats so high waves, is understandable: It is the financial economy is dependent on the confidence of the general public that it is powerful and it makes honest work. The central reference values ​​seemed beyond doubt - and now the suspicion is in the air, they had been manipulated. Supervisors are busy, work up the past, which is far from trivial and will take some time to complete world.


Who will keep an eye on that these private control bodies are actually independent? And to check if Referenzzinsätze be determined in an honest manner such instances? I have my doubts. The markets for money market operations, foreign exchange and precious metals are decentralized. Trading takes place on a large scale rather than bilaterally and not traded on exchanges or exchange-like platforms. Private supervisory bodies may therefore observe and monitor only a relatively small part of the market.

We must therefore go a step further market transparency and market control are only possible if the countless streams are centralized in the markets concerned. One therefore would have to trade in these markets move as far as possible in a transparent and directly or indirectly state-supervised trade places. What is possible with over-the-counter derivatives should also be possible in the related spot markets."

So she just made reference to "allegations" and "suspicions" about manipulation and that these allegations are serious because these reference rates are based on actual trades, not estimates like LIBOR. Not really much new news in this.

I have noted that Bloomberg has been running pretty hard on this story, even organising academics to comment on it. It is worth noting that the allegations are around the WM/Reuters FX fixes. Hmm, nothing maybe to do with the fact that Reuters is a competitor of Bloomberg and that it has a dominant position in the FX reference rates area?

I would also note that the "supervisors are busy" and it "will take some time to complete" the work. Now where have goldbugs heard that before? That's right, the infamous CFTC silver investigation. That certainly took "some time" to complete, and how did that work out?

Certainly, the extent of the LIBOR manipulation means I would not be surprised if collusion between precious metals dealers is revealed, but the CFTC experience should caution goldbugs against counting their chickens before they are hatched. Actually, by the excited blogging and twittering on it, it may be more accurate to say they are sitting at the table with knife and fork licking their lips in anticipation of PM Manipulation Chicken for dinner. Based on past experience, they could go hungry for a long time.
PS - note the reference to decentralised precious metals markets and how the OTC spot market should be moved into state-supervised exchanges. Do you think that would just stop at the professional market and not be extended to cover your retail sales? Goldbugs may want to be careful celebrating and promoting these supervisors and their agendas as they may end up being the chicken.


  1. The suggestion of 'state-supervised' exchanges is interesting, if you share my view of a physical-only gold market being introduced in Europe within a few years.

    And also, Bron, are you aware you're doing STFU work these days? Good man, keep up the good work.

  2. I am German, so I can confirm that there is nothing new in her statement, although you can not compare Bafin to CFTC. CFTC is controlled by the financial industry through lobbying politicians. Thanks God we are not controlled by the "Goverment Sachses" of this world in Germany to the same high extent like the US or UK. I am personally convinced that some traders made illegal arbitrage profit during the fixing by pushing the price some dollars. Gold is just another currency and it seems that the currencies have been manipulated like LIBOR. Today Deutsche announced that they will quit the fixing, it seems the board is fed up with their traders, because the fines of the EU are really hurting their profits...

  3. I am Belgian.
    If libor-gogo=glr
    If you manipulated libor,the rest changed automatically.
    If intrest rates change,so change the value.
    As I see it, you can not change it,you can act only.

  4. Thanks for the info on Bafin re CFTC, that gives more hope they will actually find something which will be a good thing.

  5. Bron,

    I agree that the speech itself did not really contain anything condemning as such. However, the financial regulators don't really need to say anything about any ongoing investigation, unless they want to.

    I interpreted the speech as an advance warning. "We're looking at this stuff very closely and it does necessarily not look good" seems to read between the lines. Over the five years of silver manipulation investigations, CFTC never said anything like this.

    What happened only a day after, blew my mind. Deutsche Bank "voluntarily" gave up its seat at LBMA price fixing group. To me, that looks like an admission of guilt. Giving up a seat in an insider trading ring is not something a banker does without a very good reason.

    These three things are somehow interconnected:
    1) Germany has serious difficulties getting its gold back from NY Fed.
    2) German regulators are paying closer attention to gold manipulation allegations than anyone else, even though there really is no large scale gold trading occurring anywhere in German territory.
    3) German participant of the major trading venue quits the game.

    "Once is an accident. Twice is coincidence. Three times is an enemy action."
    - Ian Fleming: Goldfinger

    This story is far from over.

  6. Hi Bron,
    thanks for the link to the original, although being german and hearing about those "bafin fights manipulations", never took the time to look up the original.

    So my take as german: It has nothing to do about "fighting manipulation". It has more or less to do calming down the public sentiments against the banking sector. And just like pointed out: Governments always welcome to pick up the ball to gain more control, and be careful for what you wish, it might come true.
    Talking about "manipulation", does somebody attending here knows, what "financial repression" means? I guess so, it is manipulation in its purest form, almost public admitted by governments/CB worldwide. How much more manipulative can it get like that? Havent heard the Bafin that they would fight that one.

    About LIBOR, okay maybe it was influenced, now what? If so, probably by now it has stopped, has LIBOR changed in any way dramatically? No!!! So why do people think that gold price would change in its height significantly, if the so called "manipulation" would stop?

    Aynway, the Bafin speech showed me something else: They are scared for the german financial instituations like capital life insurances, the biggest widest saving vehicle for the german public, with a volume of probably more than €3trillion. Really scared, why not already start looking for some scapegoat now?
    Greets, AD

  7. Unfortunately Germany is a banana republic regarding securities fraud and lacks the laws to prosecute fraud in the financial industry, therefore I would not expect to much from BAFIN, but unlike the US they are allowed to give publicly their opinion. BAFIN may probably pass their evidence to EU which has sharper knifes as it could have been seen in LIBOR. HSBC and CITI also fired currency traders and to my knowledge Deutsche Bank was the biggest currency trader.

    The reason that Gold stands at 1200 is not the rigging of the fixing, which is higly likely, because Gold is traded OTC 24h. That is the misunderstanding in the Goldbugcommunity.

    The Gold paper market is to big to be rigged by one or several banks. If it is rigged it could be only done by Central Banks and not by JPM etc., but we will never know whether this is true or not.

    Today I read that Bundesbank repatriated only 5 Tonnes from the FED in 2013. They cited problems getting transport and refiner capacity. Next year they will get some 30-50t from the FED. Bundesbank will check the serial numbers and compare it to the original serial numbers in NY. After checking the serial numbers the will be recasted to London good delivery standard in Germany.

    If the FED has leased out foreign Gold, my believe was allways it was a "paper lease", the bars never left the vaults, anything else doesn´t make sense to a Central Bank. Gold is the only universally accepted currency in case of financial stress as Mario Draghi confirmed. Every Central Bank knows it. That is probably the reason why Bundesbank repatriates Gold, they do not want to have their Gold converted to a "NEW WORLD DOLLAR" in case the "Krugmans" at the FED are failing. Everybody knows that Krugman, Bernanke etc. would never get a seat at Bundesbank....


  8. talking about the german gold:
    doesnt make much sense to me at all, probably I am missing something, so please somebody correct me:
    Why ship the gold to Germany? Why not just audit it correctly and transparent (exact serial numbers, seperation between leased and owned...)? And even more strangely, why refine it? Wouldnt it be good enough to just test the physical properties (and todays testing methods are really save)? Gold is gold, regardless if it is 995 or 999?

    IMHO you only take your gold and refine it, if you want to sell it and the purchaser wants a certain standard.

    If anybody can help me on that one, I'll be very thankful (please no goldbuggery tin foil hat bogus).

  9. @AD,

    Re: audit. It was requested a few times and denied equally many times.

    Re: refining. There's no other explanation than to hide the origin of the bars.

    The trust in the banking system is vanishing quicker than ever.

  10. @OEB,
    that's what I meant, reasonable!!!

    Just because some tin foil heads request something, never ever made or makes the BB do something. You seriously believe because some gold propagandists scream "bring our gold back" the BB would act, and to hide something (in case something would be to hide) refine it? Get a life man!!!
    And about refining: AFAIK they said lately that it will be refined in germany. If somebody would have something to hide, they would refine it in the US and then hand it over.

  11. @AD,

    To best of my knowledge, the refining was done in the U.S. prior to sending the metal over. I'm happy to alter my view on a contrary fact.

  12. @AD,

    The audit requesting tinfoil hat heads you refer to were Bundesbank officials. After a couple of audit requests, they were allowed to briefly see a small fraction of the gold at FRBNY vault.

    Once again, if there is contrary factual information available, I'm happy to alter my view.

  13. "The audit requesting tinfoil hat heads you refer to were Bundesbank officials. After a couple of audit requests, they were allowed to briefly see a small fraction of the gold at FRBNY vault."

    wow, that is interesting pieces of information. You got any references? Who? When was the request filed by whom to whom? Who was allowed to enter to take what documentation? What "small" fraction was was when inspected by whom?

    "Once again, if there is contrary factual information available, I'm happy to alter my view."
    me too, once you help me with above resources.

  14. @AD,

    Google is your friend.

    "bundesbank gold audit request"


    Soon after this piece of news, the repatriation request was issued for the total of 500 tons (in addition to the 3x50 tons mentioned here). There's full confidence between the central banks? I don't think so, either.

    Regarding melting capacity: Swiss refineries have a capacity of 2500+ tonnes per year. Claiming that 5 tonnes per year was the maximum that was possible to transfer from FRBNY vault and process into LBMA good bar in a whole year, is genuine bullshit. (LBMA weekly volume is way higher.) The real reason is something else. Not having the original bars in the vault and having to procure metal from the open market makes the most sense.

    No matter what the real reasons are, the bankers are playing with the remainders of their credibility. That's dangerous. Once the trust is gone, it's gone. Germans are getting very nervous and this thing may well escalate to other countries. If there is gold in the vaults, these repatriation requests should be taken seriously, for credibility reasons alone.

    Additional reading:




  15. @OEB
    "Google is your friend."

    to find articles and secondary sources you wanna hear. Hard facts and official statements? Not so many.
    New post up by Bron on this, that perfectly sums it up.