Monday, July 28, 2014

New Lawsuit Alleges Banks Are Also Rigging the Price of Silver

U.S. investor Scott Nicholson filed a lawsuit in New York City over the weekend alleging that Deutsche, HSBC, and the Bank of Nova Scotia are engaging in manipulation of the silver price.

The suit comes on the heels of several similar lawsuits earlier this year concerning manipulation of the gold fix. In May, Barclays was fined $44 million when it was uncovered that one of their investors was attempting to influence the price of gold. Barclays was also fined for manipulating the Libor interest rate that dictates the rates of loans and mortgages.

Both the price of gold and silver are locked-in or "fixed" during secretive, daily conference calls between a small number of large banks. The purpose of these calls is to agree on a set price for gold and silver trading for the day. Nicholson states in the lawsuit that this "Extreme level of secrecy creates an environment that is ripe for manipulation."

If these allegations prove to be true, it could reveal a much larger web of corruption or simple incompetence. A 5-year investigation conducted by the US Commodity Futures Trading Commission ended last fall and concluded that "no evidence of wrongdoing had been found." Past investigations by the commission also reached the same assessment.

If the regulatory body of the CFTC is unable to determine if unlawful manipulation has taken place but investors and economics professors claim to KNOW it has been going on for decades, it would mean that the CFTC is not doing its job.

A spokeswoman for the Bank of Nova Scotia said, "We intend to defend ourselves vigorously against this suit." HSBC and Deutsche Bank declined to comment.

Deutsche Bank announced in January that it would withdraw from participating in the gold and silver fixes.

The current benchmark system, which has been in place for almost 120 years, will finally change next month.

London Silver Fixing Ltd announced in May that it would no longer place the benchmark after Deutsche Bank ends its involvement on August 14th. The new benchmark will be set jointly by CME group and Thomson-Reuters who will utilize an electronic, auction-based system which will be easier to audit.

The World Gold Council is also reviewing options for updating and streamlining the gold fixing process.

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