Are Deutsche Bank and Barclays Taking a Big Risk By Staying in the Precious Metals Markets?

Deutsche Bank resigning from the London gold and silver fix is another indication of big banks' willingness to scale back roles in the commodities markets. However, big banks seem determined to remain players in the precious metals markets and that's bound to create waves.

May 5, 2014 at 8:00AM

Source: Flickr / Georgio Monteforti.

Barclays (NYSE:BCS) and Deutsche Bank (NYSE:DB) have announced they're scaling back roles in the commodities markets. But investors shouldn't be too quick to breathe a sigh of relief. These firms plan to continue dealing in precious metals markets, and that decision threatens to keep them in regulators' crosshairs, if not in and out of court.

Deutsche Bank to quit price fixing
Gold and silver prices are set, or fixed, during daily teleconferences held by a select group of banks. Deutsche Bank is currently one of the price-setters for both metals. After failing to sell the post, Deutsche Bank has given its two-week notice and will no longer take part in the price-setting after May 13.

Deutsche Bank has also announced it's closing trading desks for a range of commodities, including energy, agriculture, base metals and dry bulk. Deutsche Bank appears to be making great strides to exit the commodities business, which should settle choppy waters. But, then again, the bank plans to continue trading precious metals.

Barclay's fixing role fixed for now
Currently, when Deutsche Bank quits, only two banks, HSBC and Bank of Nova Scotia, will be left to fix silver prices. Gold prices will be left to Bank of Nova Scotia, Societe Generale, HSBC and Barclays.

Barclays is also trying to reduce its commodities footprint. Earlier this year, the firm announced its withdrawal from energy trading in the U.S. and Europe. Barclays also announced its intentions to exit the majority of its commodity businesses. However, Barclays will also continue dealing in precious metals markets, and expects "business as usual for now" regarding it's role fixing gold prices, reported Reuters.

Criticism, regulatory scrutiny and lawsuits
It's not surprising Deutsche Bank wants out of the price fixing role, nor is it surprising the firm couldn't sell its seat. Any party who bought Deutsche Bank's fixing rights would have paid to be in a hot seat.

Critics of price-fixing cite the lack of transparency in the process. Some say the participating banks can (or do, depending on who you ask) collude to set prices to their advantage. The banks involved in the gold fix, including Deutsche Bank and Barclays, have been slapped with a class action lawsuit for just that.

Regulators' in the U.S., U.K. and Germany are also scrutinizing banks' fixing of metal prices and the potential for abuse in the process. That is only one issue regulators are focusing on with regards to banks' commodities activities. Increasingly, regulations are tightening and authorities are pressuring firms to either get of out of commodities or to make it more comfortable for all involved.

Meanwhile, there's a vocal band of critics who believe gold and silver market rigging extends far beyond price fixing and they're dedicated to raising public awareness and taking action. JP Morgan, for example, has been slapped with silver manipulation lawsuits, allegedly connected with COMEX trading.

Precious metals isn't a playground for bankers
JP Morgan Chase, Morgan Stanley, Deutsche Bank and Barclays have all deemed it time to make major withdrawals from commodities. But, they also all plan to continue playing in the precious metals markets.

Banks consider precious metals units core segments of their business. While this may be true, critics will undoubtedly note banks' determination to stand fast in these markets versus their willingness to exit other commodities. Investors should be prepared, this seemingly ironic attraction to precious metals is prone to be fodder for long-running manipulation allegations. It's likely to keep lawsuits alive and thriving and regulators on the prowl, at least for some time to come.

Dividend stocks more valuable than precious metals
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

There was a problem reaching the disclosure generator. Please try again.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers