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DoJ & The Gold Fix: Are You Serious?

"So it is agreed; the manipulating of the fix will be allowed but controlled-- and there will be the peace." (C Paramount)

By Preston Clive

No, I mean literally--are you serious about executing something beyond a wrist slap of a fine that can be written off at the end of the year a la the hit taken by S&P in the wake of their ratings fixing during the housing scandal of rigged creditworthiness assessments?

We've seen any number of events where insider manipulation of highly influential rates and ratings have been uncovered both here by the US Department of Justice, as well as abroad by the now defunct FSA (replaced by the newly created PRA and FCA owing to the failure of their predecessor), the IMF, the EBA/ESMA/EIOPA as well as their respective Eurocentric predecessors and partners.

The case in point at the moment is a perfect example: who among us doubts that there is positively nothing to be found by the US Department of Justice when it comes to the process of precious metal rate fixing? Just this past November the spectacle of UBS in Switzerland settling allegations of misconduct between the trading desks at multiple banks to fix the fix and manipulate revenue for gold orders put the naysayers claiming "fishing expedition" into silence. Because of the close aligning of the forex and precious metals trading business, the bullet point of precious metal fix manipulation came part and parcel with the November 2014 forex scandal (which also resulted in settlements totaling 1.4 bn with Citigroup [NYSE: C], JPM [NYSE: JPM], RBS [LON: RBS], and [NYSE: HSBC] HSBC) at the end of this past year.

Clearly, the amounts at stake to be realized through a little phone call here and a quick coded text message there between trading desks at respective banks are just too irresistible for regulatory fines to act as a deterrent. Teeth are going to be required for this process of investigative oversight to work correctly, and it seems that the United States is the only major player left on the dock at the moment capable of getting serious in the Effective Oversight Dept. 

Interestingly, US Justice dept obviously feels that they are onto something significant here, as their investigation is proceeding apace despite the fact that European regulators dropped a similar probe after "finding no evidence of wrongdoing according to people close to the inquiries." The Commodities Futures Trading Commission has also opened up a civil investigation, which includes a reported subpoena to HSBC holdings related to their precious metals trading operations. 

Libor, Forex, precious metals--it's a never ending melody of bounds-overstepping on both sides of the Atlantic shores. The two telephone calls that constitute the daily fix for precious metals are so impactful, and easily manipulated via the insertion of flabby paper gold orders into the algebra out of which pops the "fix," that traders at respective global banks just can't seem to resist the urge to succumb to a little sharing of information. 

Succumb to a little sharing of information? Makes it sound like it's not systemic .  .  .  a bad moment of temptation not resisted here and there.  .  ? a small localized event that stops with the individual protagonists of each narrative who were not acting as a matter of unwritten (because it's illegal) bank policy? 

The fact is that any financier worth a gumdrop knows that all banks from top to bottom know that it's just too easy to manipulate the prices of precious metals, forex, and on and on with just the simplest and smallest of cross-institutional info-divulging about client orders. Most investigations stop relatively quickly before the entire institutional structure and mandate is exposed to be collusive. It reminds me of the "prohibition" of drug dealing that was adopted by the American Mafia running from the mid-20th Century forward. Some claimed that it was a prohibition that was enforced under the pain of death.

And yet somehow all of the inner cities under total control of La Cosa Nostra were positively saturated with babania. Now how is this possible if such a draconian prohibition were in place? 

Simple: there was no draconian prohibition. The prohibition was for appearance, and the mandate was as follows: do what is necessary to insure we thrive and remain unbeaten in this vicious, difficult world; if you engage in something I don't want to know about, and you expose me to any publicly demonstrable knowledge of it or liability to it, you die. But all profits received will in the meantime be forthwith kicked right up to the Organizational Chain.

The eurozone is in such a mess right now the last thing they wanted to do in the wake of last November (and Libora prior to that)--with all the difficulties amid Quantitative Easing, the Greek disaster, the looming clouds of Spain and Italy--was uncork a scandal.

So it is on the D of J in the USA to proceed with some variety of straight face. The only question is this: are they genuinely serious this time?