Manipulation as a Philosophy
Pfäffikon SZ, Switzerland – Everyone is able to remember the manipulation of the LIBOR rates. Tampering with interest rates is as old as the hills. Manipulating benchmarks is a very simple yet lucrative activity. It’s notable that some financial institutions, after the LIBOR scandal, redirected their attention to another focal point such as gold.
Simple
One does not have to be Einstein to understand that gold is one of the easiest markets to successfully apply what was learnt while tampering with the LIBOR rates. I am of the opinion that – next to several basal points of attention – investors do not sufficiently take into account the size, transparency and fringe phenomena of certain investment categories. It is one of the many reasons why I see no benefit to an investment in gold. The derivative products in particular are a source of worry and annoyance.
Investigation launched
In any case, the U.S. Department of Justice has recently launched an investigation into the manipulation of gold by at least 10 big banks. The investigation is still in its early stages but Barclays seems to be under fire already. It is notable that the plagued HSBC has already lent the authorities its cooperation, seemingly in an attempt to cut its losses.
Behavioral problems
Manipulation, or obtaining information in advance through clever tricks, will never be fully wiped out. It is remarkable that the involved market players do not realize how transparent and stupid they are in applying themselves. It is mainly the younger generation that seems to be struggling with behavioral problems in this regard, something which is locked into society as a whole.
It is about time that manipulation in the financial world is curtailed and made punishable by law. On this point I have seen some initiatives been put forward, but in my opinion politicians, regulators and the Department of Justice can put some more effort into tackling this issue.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
