Deutsche Bank Settles Gold Price Fixing Litigation

Last week Deutsche Bank agreed to settle US lawsuits accusing it of manipulating gold and silver prices. What does it mean for the gold market?

Deutsche Bank is accused of conspiring with the Bank of Nova Scotia, Barclays, HSBC, Societe Generale and UBS to manipulate prices of gold. It was also sued along with the Bank of Nova Scotia, HSBC, and UBS for manipulating prices of silver. Gold and silver futures traders accused the banks in 2014 of rigging the so-called London Gold Fix and Silver Fix at the expense of them and their clients. According to the plaintiffs’ claims, the banks abused their position setting silver and gold fixes to reap profits from trading and hurting other investors who use the rigged benchmark.

The traders’ lawyers disclosed the settlements in letters filed with a Manhattan federal court. The deal will include monetary payments by Deutsche Bank. Interestingly, the German bank also agreed to cooperate fully in pursuing similar claims against other banks.

What does Deutsche Bank’s settlement imply for the gold market? Well, not much, since the London Gold Fix and Silver Fix were already reformed in 2015 to increase transparency in the precious metals market. Deutsche Bank was sued in 2014 and in the same year left the precious metals fixing mechanism. However, the Western banks’ credibility may vanish and therefore some investors may look more favorably at the Shanghai Gold Benchmark Price, which just launched.

We can also witness more litigation in the gold market since the settlement may encourage other investors to launch their own lawsuits (indeed, some class actions lawsuits have already been filed in Canada).

Last but not least, Deutsche Bank’s settlement will be the grist for the gold bulls’ mill. The believers in the long-term manipulation of the price of gold will be saying: “Oh, you see, we told you so!” However, the news does not provide any proof that the price of gold was systematically suppressed. Surely, the banks could manipulate the precious metals fixing prices, but these price distortions should be short-lived. As we wrote in the February Market Overview: “we do not deny that there are attempts at manipulation which may cause very small and short-lived changes in the price of gold, or that all market participants in a market act honestly. However, such interventions are not the same as the massive, coordinated, multinational, systematic and decades-long plot to suppress the price of gold”. Deutsche Bank’s settlements prove the first type of manipulation, but it is something different from the systematical suppression being able to affect the long-term trends in gold prices. Investors should remember that manipulators do not care about the long-term direction of the price as long as they make money – they can earn profits both during bull and bear markets.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium-term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Arkadiusz Sieron

Sunshine Profits‘ Gold News Monitor and Market Overview Editor