Manipulating the Gold Market

I’ve long advised investors that gold is a thinly–traded market and is prone to sharp moves by a relatively small amount of money. But I haven’t considered how easy it might be for the market to manipulated on a regular basis. And gold isn’t the only asset that can be manipulated by governments, banks, or big investors.

Barry Ritholtz has a good collection of the information on the potential conspiracy. It links to various commentaries and theories about manipulation and also summarizes the arguments.

The Commodity Futures Trading Commission is discussing whether the daily setting of gold and silver prices in London is open to manipulation, according to the Wall Street Journal, which stated that the CFTC is examining whether prices are derived sufficiently transparently.

The system of setting gold prices in London is unusual and involves a twice-daily teleconference involving five banks – Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale – while silver is set by the latter three. The price fixings are then used to determine prices worldwide.