Are banks rigging the price of gold?

A finance researcher who in a landmark 2008 paper uncovered the manipulation of the London Interbank Offered Rate (LIBOR) has claimed that the price of gold is being manipulated in a similar manner, according to Liam Vaughan of Bloomberg.

New York University Professor Rosa Abrantes-Metz's theory about LIBOR manipulation eventually led to banks being fined $6 billion.

In a new paper, she and her co-author screened intraday trading in the spot gold market from 2001 to 2013 for sudden, unexplained moves that may indicate illegal behavior. They claim that the way in which the gold price is set "is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality." They conclude: "It is likely that co-operation between participants may be occurring."

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The gold price benchmark is determined twice a day, at 10:30 a.m. and 3 p.m., in conference calls between member banks of the London Bullion Market Association (LBMA), and is based on the current market price, plus or minus any orders that member banks or their clients wish to make. Like the LIBOR rate, the gold price set by this process is used as a benchmark by other banks and financial institutions around the world. In a $20 trillion market like gold, being able to set the benchmark price of an asset with little or no regulatory oversight could be seen as an opportunity for profitable insider trading.

Of course, none of this actually proves that the gold price is being rigged for profit. But it does mean that financial regulators need to look at it more closely.