How to Make Money Owning Global Gold Markets

tl;dr summary: A family dynasty used the disruption of the gold standard following World War I to become the permanent chairman of global gold price setting. This extended their dominance in precious metals from a monopolistic producer, refiner, supplier, and bullion banker to include market making and price setting. After this, they popularized precious metals derivatives. Later, price anomalies and the dual role of price setter and market participant would be scrutinized with modern technology. It was concluded the role of price setting and buying was being used to generate profits in the modern era, but the Rothschild family's role was only mentioned in legal proceedings but only modern banks like Chase, Bank of Nova Scotia, Barclays, Deutsche Bank, HSBC, and Société Générale have been formally charged with illegal price manipulation of precious metals.

Historic Context: The Gold Standard Era

Throughout the last five centuries, most countries adhered to a gold standard, where currencies could be exchanged for a fixed amount of gold. For instance, in 1910, various currencies had specific gold values, as shown in the table below.

World War I disrupted this system, prompting governments to adjust monetary policies and suspend gold convertibility. After the war, many nations attempted to restore the gold standard—the UK did so in 1925, with about 60% of other countries following by 1930.

This postwar period also saw a major shift with the establishment of the London Gold Fix in 1919, which transformed how gold prices were set globally.

Establishment of the London Gold Fix and Rothschild Influence

N M Rothschild & Sons founded the London Gold Fix, and this firm elected a representative to serve as permanent chairman. For centuries prior, the Rothschild dynasty had dominated global gold mining and refining, giving them significant control over the market.

The fixing process occurred twice daily in an elegant wood-paneled room, where representatives from five banks gathered. Each had a small Union Jack flag on their desk, raised to signal interest in trading at the proposed price. The chairman—traditionally from N M Rothschild & Sons—announced opening prices and guided the session. The Rothschild dynasty had dominated bullion banking before and during this London Gold Fix era. As gold and silver price setters, market makers, and market participants, the Rothschilds wielded immense power and advantage in the rapidly expanding global financial system of the 1900s.

Innovations in Derivatives: The Rise of Paper Gold

Building on this foundation, the Rothschild banking network introduced transformative financial instruments in the 1980s, creating the modern silver and gold lease market. These included gold lending and forward contracts, allowing central banks to earn returns by leasing gold to commercial banks, which then used it for short-selling.

The process worked like this: Central banks leased gold at low rates (typically 1-3%), bullion banks sold it into the market, and invested proceeds in higher-yielding assets. As facilitators, Rothschild banks enabled leases that outstripped physical supply, establishing a fractional reserve system for gold.

This "paper gold" expanded rapidly after 1980, creating what economists called "accelerated supply"—essentially bringing future production into current markets and potentially suppressing prices.

Market Dynamics and Conflicts of Interest

As market makers in the London Bullion Market Association (LBMA) until 2004, Rothschild entities held derivative positions far exceeding physical metal availability. Their dual role as price-setters and traders created conflicts of interest, later flagged by regulators as enabling manipulation.

A key indicator was the paper-to-physical gold ratio, which reached estimates of 100:1 during the derivatives boom—meaning 100 ounces of paper claims for every ounce of deliverable physical gold. This leverage allowed small trades to disproportionately affect prices.

Scandals, Withdrawals, and Legal Aftermath

Scrutiny intensified in the 21st century. A New York University study identified unusual trading patterns around the 3 PM fix, discovering statistically significant evidence of collusion among the banks. These "price anomalies"—like consistent pre-fix drops—indicated manipulation.

In 2004, amid growing concerns, Rothschild withdrew from gold fixing and trading; Barclays replaced them, and chairmanship became rotational. A decade later, in 2014, Deutsche Bank exited amid German regulatory probes into benchmark manipulation.

This sparked class-action lawsuits in U.S. courts against banks like The Bank of Nova Scotia, Barclays, Deutsche Bank, HSBC, and Société Générale. Allegations included conspiring to rig prices, affecting derivatives, physical gold, and securities. Settlements totaled over $150 million, with Deutsche Bank paying $60 million and HSBC $42 million.

Though not directly charged, Rothschild's historical role in the system was cited in lawsuits, arguing it enabled ongoing manipulation through 2013.

Modern Reforms and the LBMA Transition

In response, regulators overhauled the system. In March 2015, the London Gold Fix was replaced by the electronic LBMA Gold Price, administered by ICE Benchmark Administration. This aimed to reduce manipulation risks through transparency and automation.

The Rothschild Legacy in Precious Metals

The Rothschild family's involvement in precious metals, spanning over 200 years from 1776 to 2004, shaped modern markets profoundly. They controlled infrastructure (e.g., the Royal Mint Refinery and mercury supplies), established market structures like the five-bank model and Good Delivery standards, and influenced regulatory frameworks for central banks.

Their system has endured, governing markets with over $60 billion in daily volume, even after their direct exit. It demonstrates how private influence can define global commodity trading for centuries.

How Price Anomalies Generated Profits

These manipulations created profit opportunities through artificial supply and price strategies. Paper gold amplified this by enabling trades far beyond physical limits. Key mechanisms included:

Front-Running and Information Asymmetry: Fix participants used early insights to short-sell before drops, then buy back lower—yielding profits like $800,000 on $1 billion positions from a 0.08% decline.

Options and Derivatives Manipulation: Banks positioned contracts to benefit from engineered drops, profiting from premiums or settlements, especially with derivatives volumes 200 times physical gold.

Arbitrage Between Markets: Exploited temporary gaps (e.g., between London fix and COMEX futures) for quick gains via high-speed trading.

Client Order Execution and Fees: Delayed buys to fill at depressed prices, pocketing spreads on billions in volume.

Carry Trade Enhancement: Timed leases to sell during drops, boosting returns by investing in higher-yield assets.

Such practices, evidenced in 2014 fines, highlight how anomalies turned market roles into profit engines.