Deutsche Bank Confirms Metal Price Manipulation

As we revealed at the end of our weekly wrap on Friday, news broke Friday morning our time regarding DB’s amazing admissions regarding fixing of gold and silver pricing and its willingness to expose other complicit banks. The admission was made in attempted settlement of a U.S. class action accusing it of colluding with other banks to manipulate gold and silver prices at investors' expense for over a decade. The plaintiffs name Bank of Nova Scotia, Societe Generale, Barclays and HSBC as conspirators. Since the original class action, more have been lodged including two in the Ontario Superior Court of Justice seeking $1B in damages for Canadian based gold and silver investors. It is noteworthy that we have yet to see any significant precious metal price response to these events however one of the first obvious outcomes of this news is that those who discuss manipulation in the gold and silver markets can no longer be trivialised as “conspiracy theorists”.

So why the admission now and why the willingness to turn informant on other banks? Jason Burack of Wall Street for Main Street hypothesises that DB is attempting to get ahead of a situation that they now see as becoming uncontrollable by looking for “the best deal first” in terms of fines and information dissemination. Part of the loss of control here may be related to the curious timing of the commencement of the SGE Yuan exchange starting this week as we reported last week. Mr. Burack notes how interesting it is that no major U.S. investment bank has been named yet and according to him, there are likely to be many more class actions filed against other large US and European investment banks. The reasoning here is that DB has agreed not only to testify against other banks but also to turn over evidence such as IMs between traders and interbank emails. Unexpected things are likely to come out of this evidence and Mr. Burack sees as a consequence that it will now be harder for precious metal prices to be artificially suppressed, especially considering the upward price pressure that we often report on.

For a counter view, historian Harley Schlanger who has covered the financial industry since the 80’s suggests that we are unlikely to see any real consequences from DB’s admission. Using HSBC as an example, Mr Schlanger suggests that “there’s not a single case of criminal activity in which they haven’t been involved yet nothing has been done; no one has gone to jail. They’ve been fined and they pay the fines, it’s pocket change for them”. In support of this is Goldman’s recent payment of a $5B fine and it is understood that DB has set aside around 10B euros this year alone in expectation of fines. Mr. Schlanger concludes that it is quite likely that DB will continue engaging in activity such as FOREX manipulation, gold and silver price rigging and fraudulent reporting on derivative holdings without consequence.  

For a final point of view, Craig Hemke of TF Metals Report calls this revelation very significant. Mr Hemke suggests that the German regulators have cracked down on DB and “convinced” them to settle these civil charges. “What’s most compelling about this story is the fact that we’ve seen numerous bits of civil litigation against banks regarding manipulation over last decade or so and the banks have always worked hard to throw them out with the cooperation of U.S. courts”. According to Mr Hemke, what’s critical about them being thrown out is that each case was dismissed before the legal discovery phase where documents can be subpoenaed and people can be interviewed under oath. It has been understandably important to the banks to not get to this phase. No longer will this be the case as by virtue of this settlement, “the flood gates are open regarding class actions in the same way that they were when the first tobacco company finally broke ranks and admitted guilt”.

The fact that DB’s admissions have occurred after the unusual Fed behaviour of last week and just ahead of the commencement of the SGE Yuan gold fix suggests that something significant is in the making and promises interesting times in the days and weeks ahead.