Koos Jansen
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Koos Jansen
Posted on 26 Mar 2015 by

Euronews: If China Joins The New Gold Fix, There’ll Be Less Manipulation

On March 24, 2015, Euronews broadcasted Business Middle East, in which Nour Al Hammoury from ADS securities, stated that if Chinese banks would join the new gold fix it would be less sensitive for manipulation. Having Chinese banks participate in the fix, would indeed be very welcome.

If you like to read more about if Chinese banks will participate in the new fix read Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!

From Euronews: 

Global gold price setting arrives in the 21st century

…Better late than never, the gold market has entered the digital era, joining other precious metals in the 21st century. Criticism of an archaic global price fixing system intensified with some claiming it lacked credibility. Following numerous fines on international banks due to scandals of price manipulation, gold traders may now have more peace of mind with a new electronic system to manage price setting.

…Since 1919, the gold price setting process was limited to four international banks “Barclays, HSBC, Société Générale and Scotiabank”. In the original process, inter-bank representatives would set up a secure conference call each day in order to determine the price. UBS Swiss and Goldman Sachs have now joined this list of bank representatives. The new digital system follows the same process:

Each round is 45 seconds long. Bids and offers are displayed and updated in real-time. The difference is automatically calculated and if it stays within 20,000 troy ounces, the price is fixed. In this new system, orders are separated between clients and the banks’ trading desks.

Daleen Hassan

“Is the new electronic system able to make the daily price benchmark less vulnerable to manipulation?”

Nour Al Hammoury

“We hope. Major global banks have faced many scandals related to commodities and not only gold. The banks who were predicting the price of gold to reach above 2,000 USD/oz are the same banks who are predicting now that the price will fall below 1,000 USD/oz. Despite that, the major banks remain the biggest gold buyers, according to the latest report from the world gold council. In the meantime, the new pricing might give the market some confidence, especially if its transparent and this is what we will be watching out for the coming period.”

Daleen Hassan

“According to projections, China could play a key role in the new pricing system. How so?”

Nour Al Hammoury

“From the start of the financial crisis until today, China has been buying a huge amount of gold, making it one of the biggest consumer and buyers of gold in the past few months. Indeed, if China joins the new pricing plan, there’ll be less manipulation; the more they increase the participants the less chance of manipulation as we’ve seen before, when price setting was done by a few banks.”

Koos Jansen
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  • http://www.roacheforque.blogspot.earth/ Roacheforque

    Interesting, but as long as the “price” in currencies is dictated by futures speculation manipulation is still possible – in fact, assured. There is no supply restriction of the paper gold used to manipulate futures speculation, therefore these banks use paper gold to move the price up or down so as to skim profits from speculator losses. Daily fixing is just a starting point, and the focus upon it, a diversion away from the true “unlimited supply” dynamic of paper gold.

    For manipulation to truly end, this paper gold system must collapse, and if China is able to encourage the collapse, more the better. On the other hand, if their banks merely wish to profit form futures speculation, not so good.

    Generally, China, as a physical gold holder, will do much better globally with s super-high dollar price of gold, and that would be more important to their geopolitical cause than the profit margins of their bullion trading desks, but if they can have both (which they can) why not?

    The theory has been advanced that the paper gold system will collapse when the dollars that denominate it collapse and paper gold holders demand physical, only to receive a hyper-devaluating dollar cash-out (well known).

    As the pricing mechanism shifts Eastward, China could emulate a paper gold system with Yuan, and have the real gold supply to redeem large orders. So we may see dollar speculators becoming Yuan speculators and witness a dynamic change from that shift.

    It is the currencies that are traded in the gold markets, not gold. As long as currencies function, this will remain the case. The outlook for the dollar, either way, is the real story that gold foretells …

    • Auldenemy

      Brilliant reply Roach (and beautifully written too). I totally agree that for as long as banks are allowed to invent paper gold and silver then their manipulation of both these PMs will continue.

      • http://www.roacheforque.blogspot.earth/ Roacheforque

        Thank you Sir Auldenemy of my enemy … and therefore, my friend.

    • Armed Resistance

      Very nice insight and you are obviously well read on what transpires in these paper markets. I think the key in all of this is the dollar itself. The exchange rate is the one thing they really can’t manipulate, otherwise they would have smashed it back already. And the “strong dollar” is killing the multinationals and previous borrowers of dollars. But as everybody moves away from using the dollar in settlement, that demand will die and so will the value. They will roll out QE4 but it will only act as an excellerant for a flight to safety. At that point everybody will be running for the exit and looking for real PM’s, taking down the paper “market” in the process.

      • http://www.roacheforque.blogspot.earth/ Roacheforque

        I think, and hope, we are both right. The only fly in the ointment is the disorganization of so many powerful views, which open up the possibilities of more violent conflicts – always a wild card out there. Some we hope never played …

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