Published on Gold Anti-Trust Action Committee (http://gata.org)

LBMA admits London gold market can't be transparent with central banks in it

By cpowell
Created 2015-04-06 15:58

12:32p ET Monday, April 6, 2015

Dear Friend of GATA and Gold:

Central bank involvement may prevent the London gold market from ever becoming really transparent, the chief executive of the London Bullion Market Association has told a Bank of England study group.

The LBMA chief executive, Ruth Crowell, made the assertion in a long statement dated January 30 and sent to the bank's "Fair and Effective Market Review" committee, which is studying regulation of the currency and commodity markets. The LBMA statement was found on the bank's Internet site by gold researcher and GATA consultant Ronan Manly.

... Dispatch continues below ...


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While Crowell wrote that the LBMA welcomes more transparency in the London gold market, particularly through "post-trade reporting," she also praised gold lending by central banks for providing "liqudity" to the market, asserting that "it is vital that the role of the liquidity provider is not diminished but in fact strengthened to make sure the markets remain fair and effective."

The Bank of England's review of the gold market, the LBMA statement said, "should prioritize liquidity, as greater liquidity results in markets which are less easily manipulated, and consequently regulators should afford market participants the tools with which to foster liquidity."

But if the foremost providers of "liquidity" are central banks, their provision of "liquidity" is likely the leading mechanism of market manipulation, as central banks have not just access to effectively infinite financial resources but also the powerful motive to manipulate the markets in which their currencies and bonds trade.

Thus the LBMA has made the same bogus and self-serving claim that was made by futures exchange operator CME Group in January in support of the volume trading discounts CME Group gives to central banks for secretly trading the U.S. futures markets it operates -- the claim that secret trading by central banks deters market manipulation rather than constitutes it:

http://www.gata.org/node/14385 [3]

http://www.gata.org/node/14818 [4]

The LBMA statement acknowledges that "the role of the central banks in the bullion market may preclude 'total' transparency, at least at public level." It adds that "transparency could be increased via post-trade anonymized [emphasis added] statistical analysis of nominal volumes, provided by the clearing banks."

That is, it's OK with the LBMA if its members know what their client central banks are doing in the gold market, but not OK if mere ordinary traders and citizens know.

Thus the LBMA's position is identical to the position of central banks as described in the secret March 1999 report of the International Monetary Fund, which recounted central bank objections to the IMF staff's proposal for greater transparency in the reporting of IMF-member central bank gold reserves.

The IMF staff wanted central banks to distinguish in public reports their gold loans and swaps from the gold reserves held in central bank vaults. The central banks surveyed by the IMF staff responded with horror, complaining that clarity about their gold loans and swaps would impair their surreptitious interventions in the gold and currency markets:

http://www.gata.org/node/12016 [5]

With Crowell's statement the LBMA has proclaimed itself the enthusiastic agent of surreptitious intervention in the gold market by client central banks. This is something else that mainstream financial news organizations will have to strive to overlook.

The LBMA's statement is posted, at least for the time being, at the Bank of England's Internet site here --

http://www.bankofengland.co.uk/markets/Documents/femr/lbma.pdf [6]

-- and for safety's safe at GATA's Internet site here:

http://gata.org/files/LBMALetterToBankOfEngland-01-30-2015.pdf [7]

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

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LBMALetterToBankOfEngland-01-30-2015.pdf [14]132.9 KB

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