The manipulation of financial markets is often dismissed as the fantasy of a few conspiracy theory junkies. Equally, when gold bugs talk about the artificial suppression of gold prices, the general response is “Hogwash!” Well, these claims certainly get a lot harder to scoff at when we encounter incontrovertible proof of manipulation, in black and white.

On August 19th, we learned that the Bank of Nova Scotia agreed to pay more than US$120 million to authorities in the United States after admitting it played a part in attempts to manipulate the price of precious metals.

The Toronto-based bank, the U.S. Department of Justice (DOJ) and the U.S. Commodity Futures Trading Commission (CFTC) announced that they had resolved charges against the lender regarding metal-related trading and dealing in “swaps,” which are agreements to exchange interest-rate payments and other cash flows.

Scotiabank said it will pay approximately US$127.5 million to settle the matters as part of a deferred prosecution agreement with the DOJ and orders issued by the CFTC.

“Today, Scotiabank has admitted to their role in a massive price manipulation scheme aimed at falsely manufacturing the prices of precious metals futures contracts to serve the bank’s best interests,” William Sweeney Jr., the assistant director in charge of the Federal Bureau of Investigation’s New York Field Office, said in a press release. “The bank’s actions were designed to lead others to trade in ways they never would have without what was believed to be legitimate market activity.”

Speculation is only a word covering the making of money out of the manipulation of prices, instead of supplying goods and services. ~ Henry Ford

According to documents published by the DOJ, four Scotiabank traders based in New York, London and Hong Kong placed thousands of orders between approximately January 2008 and July 2016 to buy and sell futures contracts for gold, silver, platinum and palladium. However, a statement of facts (agreed to by Scotiabank) said those orders were placed with the intention of cancelling them before they were actually executed.

For instance, one trader is said to have placed a genuine order to sell two gold futures contracts at a price of US$1,134, then placed another order to buy 110 of the same contracts at US$1,133.80. Three milliseconds after the trader placed the latter order, the market price went higher and the sell order was executed. Soon after that, the trader cancelled the buy order.

“This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling futures contracts at quantities, prices, and times that they otherwise likely would not have traded,” the statement of facts said.

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