Late last week, The Wall Street Journal reported that the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission (CFTC) had begun investigations of 10 major banks over the process of setting prices for gold, silver, platinum and palladium in the London market.
The banks under scrutiny are Bank of Nova Scotia, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Societe Generale SA, Standard Bank Group Ltd., and UBS AG. After this announcement, the Swiss competition commission, WEKO, said it was looking into possible manipulation by Swiss banks in the precious metals markets.
As reported in the Journal, the Department of Justice is looking into criminal activity, while the CFTC has opened a civil investigation.
Many researchers have written about the extensive history of central banks manipulating gold prices over the decades. In the United States, for instance, declassified government documents released so far have all confirmed that the federal government has conspired with other governments and major banks to manipulate gold prices right from the 1930s up into the 1980s.
Historically, many government monetary systems were valued in relation to gold, so it should not surprise anyone that governments would try to influence the relative prices. In the United States, for instance, the Treasury Department’s Exchange Stabilization Fund (ESF) was established as a provision of the January 31, 1934 Gold Reserve Act. The ESF was explicitly authorized to use its funds to stabilize the exchange value of the dollar versus gold. Changes over the years have never revoked the authority to manipulate gold prices. In fact, a law enacted in 1970 directed the Secretary of the Treasury, with the approval of the President, to “deal in gold, foreign exchange, and other instruments of credit and securities.”
These new investigations follow similar reviews in Europe. Last year, the British government fined Barclays Bank more than $40 million for one incident of gold price manipulation. Also, the Swiss regulator, FINMA, said it found “serious misconduct” among precious metals traders at UBS involving a silver-fix order of one client.
If you think that the researchers and writers claiming that central banks and major private banks were manipulating the precious metals markets by suppressing prices are finally going to be proven right, think again.
I am confident that the end result of the U.S. government investigations will be, after several years in the works, some fines collected from many of these banks for specific individual incidents. Further, there will be promises that whatever wrongdoing they had done will no longer occur. And that will be all that happens.
Why do I think this is what will be the end result of such a bombshell development? The answer is simple. Ask yourself why the DOJ and CFTC are investigating trading in the London markets but not in the New York COMEX markets. While it is true that the London market handles more volume of precious metals trading than the COMEX, the U.S. markets are more relevant to Americans.
Also ask yourself why the investigations involve eight foreign owned banks and only two U.S. companies. The foreign banks would only be within the purview of American regulators if their actions in the London markets were perpetrated from the U.S.-based offices. Why aren’t other U.S. banks being investigated?
The reason these investigations will be pretty much whitewashed is that the Department of Justice is unwilling to go after Wall Street. New York Federal Reserve Bank president William C. Dudley (who worked at Goldman Sachs 1986-2007 as the chief U.S. economist, a partner, and as a managing director) confirmed not that long ago that the DOJ has no ongoing investigations of Wall Street firms. The DOJ is not conducting such investigations despite former Federal Reserve chair Alan Greenspan’s public claim that there were massive illegal and criminal frauds committed by Wall Street firms.
The DOJ consistently stated that it will not prosecute these large institutions because the risk of damage to the economy, as they were told by outside experts. However, could this DOJ policy could have more to do with the revolving doors where the DOJ and CFTC investigators largely have worked for the above named banks or hope to do so when the leave government employment?
After all, U.S. Attorney General Eric Holder announced two years ago that no investigation of UBS’s fixing of LIBOR interest rates would be done. Holder claimed in a news conference that the lack of prosecution was based on a decision of how such an investigation would impact global financial markets. But, was the real reason that UBS was a client of the law firm where Holder worked before his current job?
In a previous decision not to investigate HSBC, a Congressional panel asked for the identity of outside parties who advised the DOJ to drop the investigation for global financial stability reasons. Eventually, Justice officials had to admit that they did not consult any outside parties before canceling the HSBC review.
In sum, I expect the public to be lulled into thinking that the U.S. government is really finding and reporting the truth about the manipulation of precious metals prices. However, once you realize that the DOJ and CFTC are investigating the wrong market (London instead of the New York COMEX), not all of the appropriate American-based banks that should be investigated are being pursued because the government agencies have a “policy” to avoid investigations of firms where they used to work or hope to later be employed. Don’t expect any definitive revelations about the depth and breadth of the manipulation of precious metals trading in America.
Instead, look for the end result to pretty much be a cover-up of the suppression of gold and silver prices.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com and http://www.coininfo.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His Numismatic Literary Guild award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).