Deutsche Bank AG will withdraw from participating in setting gold (COMEX:GCG14) and silver benchmarks in London after Europe’s top investment bank joined JPMorgan Chase & Co. and Morgan Stanley in cutting back on commodities.
The German bank will sell its gold and silver fixing membership and stop submitting gold forward offered rates, according to a person familiar with the decision, who asked not to be identified because the information isn’t public. The move comes a month after the Frankfurt-based lender said it will cut about 200 jobs in raw materials.
The bank is one of five gold and three silver members that help set fixings, benchmark rates used by mining companies, jewelers and central banks to trade and value metals. The U.K. Financial Conduct Authority is said to be scrutinizing how prices are set in the $20 trillion gold market. German regulator Bafin is reviewing how banks participate in price-setting as part of its review of benchmark administration in the wake of the London interbank offered rate rigging scandal.
“At the moment there is probably not a lot of interest from buyers,” said Wiktor Bielski, a commodities analyst at VTB Capital in London. “There is nobody out there who’s building this business, everybody is scaling down. A Chinese bank or an emerging-markets player would be a more likely buyer than a traditional Western bank.”
In private meetings last year, the U.S. Commodity Futures Trading Commission, which regulates derivatives, discussed reviewing how gold prices are set, a person with knowledge of the talks said. The U.K.’s FCA is scrutinizing the setting of gold prices, a person with knowledge of the review who asked not to be identified because the matter isn’t public, said last year.
The London Bullion Market Association said in November it’s reviewing its own benchmarks to see whether they conform to guidelines set by the International Organization of Securities Commissions in July. Those include making prices based on “observable” deals where possible. The LBMA oversees gold forward offered rates, which reflect bullion borrowing costs for different durations and are used in loan agreements.
Aelred Connelly, a spokesman for the association, said he couldn’t immediately comment.
“Deutsche Bank is withdrawing its participation in the gold and silver benchmark-setting process following the significant scaling back of our commodities business,” the bank said in an e-mailed statement today. “We remain fully committed to our precious metals business.”