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The Australian newspaper reports today on the damning case against the London gold fix following work by one of their leading academics. The research by the PHD mathematician shows quite conclusively that there is a build up of trading activity before and after the London fixings according to his heat map - proving conclusively that price manipulation was evident - Brilliant ... nearly. 

Actually what the research has discovered is a well known concept which is called clustering - people do it all the time - think of activity around a train station - think of church-goers - think of food markets... even animals do it (for protection) and all quite legitimate. So, no sir, you have not discovered anything other than one of the oldest and best known concepts known to man and beast - and that is the benefits of getting together... and you don't need a PHD to know that. 

Markets in particular do it because during periods in and around an event such as the benchmark you get high levels of liquidity - and high levels of liquidity means you get best price execution for your trade. 

Going back to the fix, the argument seems to have overlooked a few other salient points. Clients trading through the fix invariably do not declare their interest before the event - even if they did, they have the option to change or cancel their order if the price is unattractive. I might add that the fixings are primarily a venue for market professionals and not widows and orphans. These are seasoned miners, fellow bankers, central bankers and other professionals who are participating who, like the fixing members, have a high level of market knowledge. It is distinctly not a platform for the retail client. In short, what about the potential for fixers themselves getting stitched up by their clients...

It is no surprise that US courts have seized upon the academic report, prompting a flurry of law suits to be filed in what is clearly looking like a pre-ordained desire for a guilty verdict in search of evidence to support it ...

14 Oct 2016

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