Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) was up on Tuesday morning in the wake of a scandal set to shake the entire metals market. There has been a lot of talk about what influences the price of gold since the metal’s collapse in 2015, but most work didn’t list “collusion” as a major factor.
Yet that may change in the wake of a statement on Tuesday from WEKO, Switzerland’s competition authority. It seems likely that collusion and price-fixing are very much among the factors that drove the market for the last few years. The agency has followed US regulators in investigating the world’s major trading houses for fixing the price of metals.
Gold traders fix prices
WEKO Said that there were “possible prohibited competitive agreements in the trading of precious metals were agreed among the banks mentioned.” The body named UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui. It said it would look into whether they sought to fix bid/ask spreads.
WEKO said that it could add more banks to the enquiry if it found them to be involved during the course of its investigation. What WEKO is saying, at a basic level, is that major banks on Wall Street and abroad fixed the price of gold futures.
It seems that those trading gold were emboldened by the news of Swiss involvement in the scandal. At time of writing the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) was selling for $2.79, up 4.49 percent for the morning so far.
Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) rises slowly
The shake up in the gold market, in the course of an investigation that will likely go on for a very long time, hasn’t caused great surprise or volatile trading. Despite the price-fixing scandal, which could do more to undermine the idea of gold as a store of value, those buying and selling the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) seemed to think it was worth more on Tuesday than on Monday.
The ETF rose much more strongly than the price of spot gold. The Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) follows an index of gold miner shares and those shares move broadly in line with the price of the yellow metal.
For the time being, however, the market is trying to figure out how to value stocks in general as we head toward a likely rise in the Fed’s target rate before the end of the year. On Tuesday the stock market as a whole rose, and shares in gold miners seem likely to respond to that.
The effect of the price fixing scandal on he gold market really isn’t very clear, and, with such volatility, it may never be clear what effect it was having on market prices. Brian Lucey, a professor of finance at Trinity College Dublin said “The question is not if individuals, or groups of individuals are collaborating to rig the game for themselves, the question is if this has any material effect.”
He added that he is “not convinced collusive behaviour will have a meaningful effect micro-economically to the structure of gold trading around the world.”