All that Glitters Shouldn’t Be Fixed

Courtesy of The Daily Bell:

Take, for instance, the use of the word “ritual.” The gold fix is NOT a ritual. It is an arrogant abuse of power that involves the traders of gigantic insider banks agreeing between themselves on the price of the precious metal twice a day.

There is no need to “fix” the price of gold twice a day. It’s absurd. But it’s hardly a ritual. And how is it that a mainstream publication like this one can post an article about this price fixing “ritual” without even bothering to ask WHY? As in why not let the “market” fix the prices? Works for many other actively traded goods and services. Why, in London, is gold exempt? Isn’t that a reasonable question to ask? And yet it wasn’t. Here’s more: The five banks who oversee the so-called London gold fixing — Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc and Societe Generale SA — have formed a steering committee that’s seeking external firms to advise how the process could be improved, according to the person, who asked not to be identified because the review isn’t public.

The fixing refers to a rate-setting ritual dating back to 1919 in which representatives of the five member banks speak by telephone from a couple of minutes to more than an hour about buying and selling gold. The method has faced scrutiny in recent months, with regulators in London, Bonn and Washington — who are already looking into manipulation of interest rates and currencies — investigating how prices are set in the market. Continue reading

Slump in debt trading sends shockwaves across City firms

Courtesy of City AM:

BANK shares fell yesterday as fears mounted that global bond trading is facing a prolonged decline, after Deutsche Bank swung to a surprise loss in the final quarter of 2013.

The German lender joined Goldman Sachs and Citigroup, who last week reported weak fixed income trading revenues.

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Deutsche Bank’s shares dived another 5.4 per cent, and sent shockwaves through markets – other firms heavily involved in fixed income also saw their stock fall.

Icap’s shares dived 4.31 per cent, while fellow broker Tullett Prebon’s edged down 0.85 per cent.

Barclays saw its shares dip 2.01 per cent and RBS fell 1.29 per cent – it still has bond market exposures despite slimming its investment arm. Continue reading

German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing

In a follow up to yesterday’s article, more from The Hedge:

Germany’s blowback against gold manipulation is accelerating. Following yesterday’s report that Bafin took a hard line against precious metals manipulation, after its president Eike Koenig said possible manipulation of precious metals “is worse than the Libor-rigging scandal”, today the response has trickled down to Germany and Europe’s largest bank, Deutsche Bank, which announced that it would withdraw from the appropriately named gold and silver price “fixing”, as European regulators investigate suspected manipulation of precious metals prices by banks. As a reminder, Deutsche is one of five banks involved in the twice-daily gold fix for global price setting and said it was quitting the process after withdrawing from the bulk of its commodities business. The scramble away from gold fixing was certainly assisted by the recent first (of many) manipulation expose in the legacy media, when Bloomberg revealed “How Gold Price Is Manipulated During The “London Fix.” And sure enough, with Germany already very sensitive to the topic of its gold repatriation, and specifically why it is taking so long, it was only a matter of time before any German involvement in gold manipulation escalated to the very top.

Reuters has more:

“Deutsche Bank is withdrawing its participation in the gold and silver benchmark setting process following the significant scaling back of our commodities business. We remain fully committed to our precious metals business,” it said in a statement.

In mid-December, German banking regulator Bafin demanded documents from Deutsche Bank under an inquiry into suspected manipulation of benchmark gold and silver prices by banks, the Financial Times reported, citing sources.

Bafin declined to comment on Friday, but its President Elke Koenig said the previous day that it was understandable that the topic was attracting widespread concern.

“These allegations (about currencies and precious metals) are particularly serious, because such reference values are based – unlike LIBOR and Euribor – typically on real transactions in liquid markets and not on estimates of the banks,” she said in a speech Continue reading

Gold Manipulation, China, Germany and the US – Geopolitics is going to get interesting

Geo-politics is about to get very interesting as China have announced that they have expanded their gold reserves by 76% ergo having the 3rd largest gold reserves in the world. According to the voluntary reporting system of IMF which monitors international gold reserves, China’s gold reserves have increased from 1,054 Tons in 2009 to April to 2,710 metric tons. To stir the plot a lot more, those naughty yanks have been manipulating the gold market and it’s out in the open, tinfoil is the new black. Courtesy of The Hedge:

Remember when banks were exposed manipulating virtually everything except precious metals, because obviously nobody ever manipulates the price of gold and silver? After all, the biggest “conspiracy theory” of all is that crazy gold bugs blame every move against them on some vile manipulator. It may be time to shift yet another conspiracy “theory” into the “fact” bin, thanks to Elke Koenig, the president of Germany’s top financial regulator, Bafin, which apparently is not as corrupt, complicit and clueless as its US equivalent, and who said that in addition to currency rates, manipulation of precious metals “is worse than the Libor-rigging scandal.” Hear that Bart Chilton and friends from the CFTC?

More on what Eike said from Bloomberg:

The allegations about the currency and precious metals markets are “particularly serious, because such reference values are based — unlike Libor and Euribor — typically on transactions in liquid markets and not on estimates of the banks,” Elke Koenig, the president of Bafin, said in a speech in Frankfurt today. Continue reading

Derivatives and the Real World Implications

The derivatives market is part of the financial system which operates behind the stock market and shadow banking system. It essentially leverages bets (forward, option or swaps) on the value of commodities, stocks, bonds, interest rates, currencies and anything else they can think of. The value of the market which is hard to nail down but estimates at $700 trillion-$1.4 quadrillion, considering the worlds GDP is about $65 trillion a year, its rather under reported.

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Straight from wiki:

“A derivative is a financial instrument which derives its value from the value of underlying entities such as an asset, index, or interest rate. “A derivative is a financial contract whose value is derived from the performance of underlying market factors, such as interest rates, currency exchange rates, and commodity, credit, and equity prices. Derivative transactions include an assortment of financial contracts, including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards, and various combinations thereof.”

Why is this relevant? Silverdoctors broke the news below and were subsequently hacked. Here’s a slice:

In the introduction, the resolution informs readers that the FDIC and the Bank of England have been working together to formulate the new bail-in model for future bank failures:

The Federal Deposit Insurance Corporation (FDIC) and the Bank of England—together with the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, and the Financial Services Authority— have been working to develop resolution strategies for the failure of globally active, systemically important, financial institutions (SIFIs or G-SIFIs) with significant operations on both sides of the Atlantic.

The goal is to produce resolution strategies that could be implemented for the failure of one or more of the largest financial institutions with extensive activities in our respective jurisdictions. These resolution strategies should maintain systemically important operations and contain threats to financial stability. They should also assign losses to shareholders and unsecured creditors in the group, thereby avoiding the need for a bailout by taxpayers.

The joint US/UK resolution states that depositor haircuts are already legal in the UK thanks to the 2009 UK Banking Act:

In the U.K., the strategy has been developed on the basis of the powers provided by the U.K. Banking Act 2009 and in anticipation of the further powers that will be provided by the European Union Recovery and Resolution Directive and the domestic reforms that implement the recommendations of the U.K. Independent Commission on Banking. Such a strategy would involve the bail-in (write-down or conversion) of creditors at the top of the group in order to restore the whole group to solvency. And that the legal authority has already been given in the US buried in Dodd-Frank Act.

In Laymans terms, if and when a systemic crash happens, customers accounts will be raided!

But today it was revealed that Deutcshe Bank and not JP Morgan, who has the highest derivatives exposure in the world. Located on page 87 of the annual 2012 report it states that its derivatives exposure is €55,605,039,000,000.

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Convert that into USD at the current EURUSD exchange rates 29/4/13, it amounts to $72,842,601,090,000…About $2 trillion more than JPMorgan. Through the magical and mythical accounting procedure of netting, this number collapses into €776.7 billion in positive market value exposure (assets), and €756.4 billion in negative market value exposure (liabilities). Rather than magic I’d like to call it what it is, ACCOUNTING FRAUD.

What does that much exposure look like compared to the German GDP?

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It’s worrying that big banks can have so much exposure to highly leveraged instruments and when it goes South, Mr Joe Public will have to take the hit, Cyprus was just a try out and it’s coming to a bank near you!

The question is how to protect yourself? Hard assets like land, property and precious metals such as gold or silver would be a good investment and act as a hedge against a bank collapse, as well as inflation. Having a supply of fiat currency would also help protect you if the banks decided to carry out a bail-in.

Testing times are ahead of us.