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How a gold trader at Barclays cost the bank $43.8 million

by , 03 July 2014

Back at the end of June in 2012, David Plunkett, a trader and director on Barclays' precious metals desk, realised that he was in trouble. The expiry date was coming up for a customer's long trade. And if the gold price closed above a certain level, the bank would have to pay out $3.9 million to the customer. So Plunkett decided to manipulate the price of gold to save the loss. Let's take a closer look at how he did it…

The gold trader manipulated the price of gold

Just before this trade expired, Plunkett took steps to manipulate the price of gold through the twice-daily price fix. (You can read more about it here .)

If the bank took the loss, it meant that Plunkett’s trading book would lose $1.75 million. So he decided to take action against this.

He started to place orders to try to drive the price of gold down. He also sent an email to his colleagues stating that he was hoping the price of gold would dip slightly.

During the afternoon gold price fix conference call, Plunkett placed large orders, withdrew them and placed them again to influence the gold price.

By the end of the price fixing phone call, the price was set at $1,558.50. A mere 46c below the level that Plunkett was trying to stay clear of.

Barclays’ customer blew the whistle on the gold trader

Other traders were unaware of what happened. But the customer suspected there was foul play at work. He complained to the financial regulator.

This led to an internal investigation. This revealed that the bank manipulated the price of gold. Barclays then paid the customer his rightful profit.

The financial regulator then did its own investigation and uncovered the bank’s shortcomings. This led to Barclays receiving a fine of $43.8 million.

Plunkett now has a ban for trading and received a fine of $161,000.

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While the bank stressed that this was an isolated incident, it also shows how easy it could be to manipulate the price of gold. This also shows that as one of the four banks that sits for the twice-daily price fix, it is easy to manipulate the gold price.

And this means this manipulation of the gold price is probably more common that anyone realised.

So there you have it, how a gold trader at Barclays cost the bank $43.8 million.

How a gold trader at Barclays cost the bank $43.8 million
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