Barclays fined £26 for long-term gold price manipulation

Gold bullion bars. (Via Wikipedia)
Gold bullion bars. (Via Wikipedia)

WASHINGTON, May 23, 2014 – ZeroHedge reported this morning that UK-based Barclays PLC (BCS), one of the world’s major banks, has been caught manipulating the gold bullion market and London fix for at least a decade.

According to the report, which cites the respected Financial Times for evidence,

…the UK Financial Conduct Authority finally formalized what most in the ‘tin-foil’ hat community had known for years, when it announced that it fined Barclays £26 million for manipulating ‘the setting of the price of gold in order to avoid paying out on a client order.’ Furthermore, the FCA confirmed that those inexplicable gold raids which come as if out of nowhere, and slam gold with a vicious force so strong sometime they halt the entire market, had a very specific source: Barclays, whose trader Daniel James Plunkett, born 1976, ‘sent out a burst of orders aimed at moving the price of the yellow metal.’

(Boldface via ZeroHedge.)

How did this work, exactly? Again, ZeroHedge:

The FCA said Mr Plunkett had manipulated the market by placing, withdrawing and re-placing a large sell order for between 40,000 oz and 60,000 oz of gold bars.

He did this in an attempt to pull off a ‘mini puke[,’] which the FCA took to mean a sharp fall in the price of gold. As a result, the bank was not obliged to make a $3.9m payment to the customer under an option contract.

Plunkett accomplished his price manipulation in precisely the way that high-frequency traders manipulate stock prices on this side of the Atlantic every day; namely, by placing, canceling, and re-placing huge buy or sell orders faster than corporate and individual investors and/or their own computing systems can perceive, creating big moves up or down that can trigger stops [generally good-‘til-canceled (“GTC”) orders activated by a specific price point] and often concurrent orders in the same direction.

In other words, investors get suckered into or out of automatic trades up or down based on a massive, institutional head fake.

Citing a previous article, ZH provides a bit more background:

There was a time when, if selling a sizable amount of a security, one tried to get the best execution price and not alert the buyers comprising the bid stack that there is (substantial) volume for sale. Of course, there was and always has been a time when one tried to manipulate prices by slamming the bid [the prices at which customers are lined up to sell] until it was fully taken out, usually, just before the close of trading, an illegal practice known as ‘banging the close.’ It appears that when it comes to gold, the former is long gone history, and the latter is perfectly legal.

(Bracketed clarifications by this writer.)

The Prudent Man remembers back in the days when he was a broker himself (the 1980s), any fund or customer with a very large batch of stock to unload worked with the broker or brokers involved to carefully and confidentially dribble that large lot out in batches, over a period of hours or even days.

The notion behind this tactic was simple and not always as duplicitous as it might seem. By simply putting a huge block of stock on sale, the seller is, inadvertently or otherwise, telegraphing either that he knows something bad about the company or commodity he’s dumping; or, perhaps worse, that he’s being forced to liquidate a large position for some reason.

In either case, however, the moment the giant sell order is on the books, any individual or fund that spots it either scrambles to get out before that order is fully executed; or, again worse, generates short sales against the order which can accelerate the move downward.

But HFTs, essentially executing a portion of the Barclays gold methodology, fire off and then cancel orders so fast that the fake orders are still on the wire when other traders spot them, causing selling panics, known on the downside as “bear raids.”

Anyone who’s done any gold trading, particularly over the last two years or so, has become sadly familiar with these raids which are sudden, violent, and occur without any warning at all, but most often when the price of gold bullion threatens to exceed $1300 an ounce. Now we know that these bear raids have been generated by Barclays, at least some of the time.

Other evidence exists that other large banks have also dabbled in this game, and perhaps central banks as well. It’s all for fun and profit, of course. But the secrecy and lack of transparency would also seem to indicate that the price of bullion is being capped precisely to allow room for Western economies to inflate their way out of the terrible predicament their central governments have gotten us into. And obviously, none of these players want John Q. Public to know about this.

Yet the Barclays admission—probably the tip of the iceberg—is perhaps the first concrete evidence we have on this collusion. Given the other players that are likely involved, we shouldn’t expect a lot more information any time soon.

In today’s report, ZeroHedge cites an earlier article that contains more detailed information as to what’s going on with market manipulation in general. Gold bugs as well as interested investors who don’t mind a bit of inside arcana are invited to read it. Entitled “From Rothschild to Koch Industries: “Meet The People Who ‘Fix’ The Price Of Gold,” the manipulation game as described would be worthy of a novel if anyone could figure out how to make the tactics involved seem relatable to the average investor.

Be cautious, however, and don’t read too much into the “Koch Brothers” meme in the title. One sentence in the article notes that one of the traders involved in the wider gold manipulation game once worked for the Koch Brothers in an earlier life. Given the nature of their business—which, like companies ranging from Alcoa to GE to Exxon, involves commodities and hedging in part to set contractual prices for the resources they must acquire—the Kochs do not, like large and central banks, have the resources to devote to a program of price fixing.

ZeroHedge offers valuable and often reliable information, but the site’s left-wing tic is always in evidence, and hence the spurious, Alinksy-ite headline reference. Of course, the Kochs are reliable Google headline-grabbers as well, something likely not lost on “Tyler Durden,” the multi-headed anonymous proprietor of ZeroHedge. We don’t begrudge them that. But now you’ve been warned.

Aside from this, however, the information in these reports seems well researched and generally reliable, or at least highly persuasive. It’s also ample evidence that the oligarchs and the legion of professedly liberal politicians they own are firmly in control of our universe at present.

For differing reasons, both ZH and this columnist do seem to agree that only something resembling a political revolution will be enough to dislodge these increasingly feudal barons who run the world for their personal profit and to our detriment.

As evidenced by Barclays’ modified, limited hangout of their role in the obvious manipulation of gold, this is a complicated story that goes far, far deeper. And the powers that be (TPTB) have Zero Interest in allowing us to discover much more about it any time soon.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17