Nanex Research

Nanex 23-May-2014 ~ Manipulating Gold

The charts below show the active Gold Futures contract on June 28, 2012 during the London afternoon gold fixing (3pm London time, 10am Eastern Time). This is when the FCA said a trader at Barclay's intentionally manipulated the price lower.

After a careful reading of the FCA's summary of the events, we have questions.

  1. Why would Mr. Plunkett email "members of the Commodities business" that he was under pressure to the tune of millions of dollars if the afternoon Gold fix was above $1558.96? Who were these members, and did any of them trade gold that day? Do poker players show everyone their hand at the beginning of a round?
  2. Mr. Plunkett further expressed his desire for the afternoon fix to ideally be 1558.75: the acutal fix, was 1558.50! Yet he sent his email when the price of gold was nearly $20 higher at 1577.50. What are the odds? Is Mr. Plunkett really that lucky?
  3. Mr. Plunkett made no attempt to manipulate prices during the crucial first 6 minutes of the fixing time (10am EDT, 3pm London) - yet became actively involved after. Why did he wait during the first 23 seconds when the price of gold was much, much higher?
  4. How does the FCA know the drop at 10:00:23 was unrelated to Barclays or Mr. Plunkett? Do they have access to COMEX audit trail data? If so, why was there no mention of cooperation with the exchange or the CFTC?
  5. Was there a news event at 10:00:23 such that it would trigger the massive 1,100 contract gold sale that ripped right through the book? At a time that was almost perfect for Mr. Plunkett.
  6. Why did gold stocks seem almost immune to the sudden drop in gold at 10:00:23?

Note the times on the charts are Eastern - to convert to London time, add 5 hours.

1. August 2012 Gold (GC) Futures trades and quote spread labeled with the London Fixing events as described by the FCA.
  1. On the evening of 27 June 2012 (London time), Mr Plunkett sent an email summarising his risk exposures to other members of the Commodities business area, including members of the Precious Metals Desk, stating that the Digital was his “main event” for 28 June 2012 and that he was hoping for “a mini puke to 1558 for fixing”. (4.12 pg 9).
  2. Mr Plunkett repeated this sentiment on the morning of 28 June 2012, stating to a colleague “hopefully we fix 1558, or 1558.75 ideal" (4.12 pg 9).
  3. Time of afternoon gold price fixing - detailed in chart 2 below.

2. August 2012 Gold (GC) Futures labeled with the London Fixing events as described by the FCA. This is a close-up of the area labeled "C" in Chart 1 above.

The blue line at $1558.96 is the important "Barrier line" that the London price fix must be under for Mr. Plunkett to earn millions. The fixing process starts at 10am (3pm London) and ends when equilibrium is reached. On ths day, the fix reached equilibrium at 10:10 at a price of $1558.50 (labeled F on the chart below).

  1. Chairman proposes $1562 as the opening fixing price (4.13 pg 9).
  2. Proposed price drops to $1556 in response to drop at Comex "independent of Barclays and Mr Plunkett" (4.13 pg 9). Was that the "mini-puke" Plunkett hoped for?
  3. Chairman raises price to $1558.5 shortly before 10:06 (4.14 pg 9).
  4. Plunkett places large sell order (40K-60K oz) with Barclay's Gold fixing representative at 10:06, and withdraws at 10:07 (4.14/4.17 pg 9/10). This is Plunkett's first interaction.
  5. Plunkett again places large sell order (60K oz) at 10:09 until fixing complete at 10:10 (4.21 pg 10).
  6. Chairman declares price to be fixed at $1558.5 at 10:10 (4.23 pg 11).

3. August 2012 Gold (GC) Futures trades and quote spread - Zoomed in.

4. August 2012 Gold (GC) Futures trades and quote spread - Zoomed in.

5. August 2012 Gold (GC) Futures trades and quote spread over a 5 second period of time (10:00:21 to 10:00:26 Eastern).
The important barrier price that Mr. Plunkett needed the London gold fix to be below was $1558.96 which is near the middle of the price on this chart. Approximately 1,100 contracts were traded during the sudden price drop, which, according to the FCA order, was "independent of Barclays and Mr Plunkett".

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