Friday March 15th was an interesting day in the gold market. The Wall Street Journal wrote the following:
“U.S. regulators are scrutinizing whether prices are being manipulated in the world’s largest gold market, according to people familiar with the situation. The Commodity Futures Trading Commission is examining the setting of prices in London, in which a handful of banks meet twice daily and set the spot price for a troy ounce of physical gold, the people said.”
After four and a half years of quasi silence about the silver price manipulation case, “it appears” from unnamed sources that the CFTC is “discussing” whether the daily setting of gold and silver prices in London is open to manipulation.
The news triggered a chain reaction on several websites. The Guardian wrote “Could gold be the next Libor scandal?“, GoldMoney’s Alasdair MacLeod analyzed the motives of the CFTC in “CTFC consider London fix investigation“, obviously GATA reacted in a direct way with “So what if all markets are manipulated? This is what“, and BullionVault made use of the opportunity to explain how the gold and silver price is fixed in “How to Fix the Fix“.
Precious metals strategist K. Xeroudakis brought forward one missing element in everything we read. And it is a crucial one! As it is proven that LIBOR was rigged, automatically the gold and silver market is manipulated as well. LIBOR is part of the Gold & Silver Lease Rate formula. The LBMA lease rate is the following:
Gold Lease Rate = LIBOR – Gold Forward Offered Rate (GOFO) *
Silver Lease Rate = LIBOR – Silver Forward Offered Rate (SiFO)
“It is amazing how nobody talks about this simply yet powerful FACT,” says Mr. Xeroudakis. It’s about time to bring this point into the debate(s).
* Evidence that the Gold Lease Rate formula is correct. Page 748 of “The Handbook of Commoditiy Investing” by Frank J. Fabozzi, CFA, 2008 John Wiley and Co. (3d last sentence): “Gold lease rate.We calculate this by substracting the three month gold forward rate from the three month LIBOR dollar interest rate.”