Banks, traders and mining firms are in a fix about how the price of the precious metal is set following financial regulators handing Barclay’s Bank a £26 million fine for market abuses.
The Financial Conduct Authority (FCA) handed out the punishment to the bank for failing to manage internal systems and over customer conflicts relating to the London Gold Fixing.
The FCA alleges the gold fix is open to manipulation because the banks involved in setting the price both hold and trade gold, leaving them open to a conflict of interest between their own businesses and their involvement in the general market.
A former Barclay’s trader was also banned from involvement in any regulated financial business and was fined £95,000 for his part in the debacle.
Now trade body the World Gold Council is calling for the industry to suit down round a conference table to discuss reforms to the way the price of gold is fixed.
Talks to reform metal markets
A separate forum is also underway by members of the London Bullion Market Association (LBMA).
The LBMA is looking at an electronic fixing process for the price of silver, which could also extend to gold, platinum and other precious metals.
The FCA is involved in both forums as an observer.
This combined action is loading pressure on to the four banks involved in the London Gold Fix to change the way they work and to make pricing more transparent.
The London Gold Fix is announced twice daily following a telephone conference call between Scotiabank, HSBC, Barclay’s and Societe Generale.
They are supposed to assess the current price of gold by looking at trades on the market. Essentially, the fix is a gentlemen’s agreement between the four banks.
Why the gold price is fixed
The aim of the gold fix is to set a consistent market price for the metal as a benchmark for central banks, mining companies, jewellers, gold buyers and investors.
The London Gold Fix is a system dating back to September 1919.
Natalie Dempster, head of central banks and public policy at the World Gold Council, said: “After almost a century it is not surprising that we need to look at the suitability of the London Gold Fix for today’s market.
“Technology, transparency and regulation have all changed and automating this price may be the way forward.”
“The London Gold Fix has a lot of good factors – especially the fact it is based on actual traded prices and sets a benchmark for the industry. However, how the price is reached needs reforming.”
