Is Barclay’s gold trader Mr Plunkett back in business?!

4 mins. to read

One of those pesky banks and the poster boy of corporate greed, Barclays, was recently fined £26 million by the UK Financial Conduct Authority for manipulating “the setting of the price of gold in order to avoid paying out on a client order”. Yes, you heard that right. The banks traders manipulated the price of gold in order to stop a client collecting their rightful profit. I know, I know, it goes on right throughout the industry!

Given the routing in the precious metal spectrum yesterday, with gold in the vanguard and experiencing a near $30 drop, it seems that the erratic price swings we have been witnessing ever more regularly in recent years are in fact not the result of a healthy interaction of supply and demand between real buyers and sellers, but rather the result of Mr Daniel James Plunkett, the Barclays trader’s attempts at managing the price of gold! And yes, that is his real name.

According to the FCA, “Barclays failed to adequately manage conflicts of interest between itself and its clients in relation to gold fixing for an entire decade between 2004 and 2013”. You don’t say! The bank, through its main gold trader Mr Plunkett, had been driving down the price of gold in order to avoid having to pay out to its clients on options contracts.

Before the so called gold fixing that occur everyday (with Barclays being part of it), and that sets the closing price, Mr Plunkett was seemingly placing orders in the market in an attempt to ensure that the price was at a particular level that would avoid the bank having to pay out on options held by clients. Mr Plunkett has been placing these orders during periods when market liquidity was markedly lower in an attempt to slam the bid down until it is fully taken out. This is done during the early morning hours and just near the market close and induces erratic movements that have confounded many as the moves seem to be entirely independent of any new catalyst. Given the price shakedown yesterday, almost on cue at 1:30pm, one could be forgiven for thinking that Mr Plunkett was operating in the market again! Attempting to manipulate a price is an illegal practice known as “market abuse” as it aims to distort the normal price mechanism of the marketplace and so misguide investors.

Manipulation in motion!

While the steps taken by FCA are important ones, adding further weight to the suspicions of many that the gold market is mis-managed, it did take 10 years of illegal behaviour before someone actually did something. While some of the biggest clients may end up being compensated by the illegal act, many retail investors who were caught off guard by stop loss orders that should had never kick into the system are extremely unlikely to have any recourse… As ever, retail gets clobbered and the big boys appear to be unfettered with the same hardship.

To us, the major issue in this sorry episode is that, per the tried and tested rout in the City, the bank is trying to create the impression that the problem here is now with the institution but rather a single trader, namely Mr Plunkett. Having worked in the City we can say categorically that it is usually not a “rogue” trader but rather the corporate culture to blame. Of course, there always needs to be a “fall guy”, just ask Mr Martoma from SAC Capital”!

It would be really nice if we could blame just one trader, fire him, prevent him from working in a financial institution again and the problem be solved. But, as we all know, life doesn’t work like that. Interestingly, Mr Plunkett did not even work at the bank until 2006, so at least between 2004 and 2006 it must have been someone else doing the illegal trading. Perhaps another rogue trader..?

The “Diamond geeza” Bob

Barclays has a somewhat muddy past of malpractices. Only 18 months ago it’s then Chief Exec Bob Diamond had to walk the plank because of the Libor scandal. Now we have another shock – 10 years of managed gold fixing.

The problem with the gold market is that it presently reflects anything but the fundamentals. If the demand and supply laws that are taught at university are really true, then with the quantity of money printing we have witnessed over the last five years, the price of the dollar relative to gold should now be materially less (that is the gold price much higher). But, in contrast, and even with buoyant demand for the physical metal and also diminishing supply, the price continues to ebb away in the paper markets. While Mr Plunkett has his share of responsibility for the false gold price we see, he is just small fish in the tank. The real culprits are the Central Banks in our opinion.

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