Gold fixing didn't cheat, probably

There’s “no clear evidence” of manipulation during the century-old London gold fixing, the U.K.’s Financial Conduct Authority’s David Bailey said.

It’s still possible that manipulation may have occurred, Bailey, director of financial markets infrastructure and supervision at the FCA, said at a U.K. Treasury Select Committee hearing in London today. The authority expects the industry to say whether the fixing complies with International Organization of Securities Commissions guidelines in the next month, he said.

The World Gold Council last month called for a meeting on July 7 for the industry to discuss changes to the price-setting mechanism. Intercontinental Exchange Inc. to the London Metal Exchange have proposed an alternative to the silver fixing that’s ending Aug. 14 as Deutsche Bank AG’s exit from the phone- based ritual as it scales back its commodities business would leave just two banks to set prices for that metal.

While traders say fixings are efficient and a crucial reference point, economists and academics say the process is susceptible to manipulation and lacks sufficient regulation. Precious metals are getting more attention from regulators after price rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks.

FCA fine

The FCA in May fined Barclays Plc after a trader sought to influence the gold fix in 2012. The regulator has been visiting member banks involved in the gold fixing this year as part of its review of gold benchmarks, a person with knowledge of the matter said in April.

The means to manipulate gold during fixings exists, Alberto Thomas, a partner at advisory firm Fideres Partners LLP, said during today’s hearing. The fixing is difficult to audit, doesn’t have good governance, and there’s a “strong indication of manipulation,” he said, referring to price moves.

Gold was fixed at $1,326.50 an ounce this afternoon. The metal for immediate delivery has climbed 11 percent this year, rebounding from the biggest annual slump in three decades, according to Bloomberg generic pricing.

Deutsche Bank has already left the gold fixing, leaving Societe Generale SA, Bank of Nova Scotia, HSBC Holdings Plc and Barclays Plc as the four remaining members of the process which takes place twice daily and dates back to 1919.

During fixings, member banks declare how much metal they want to buy or sell for clients as well as their own accounts. Traders relay shifts in supply and demand to clients and take fresh orders as the spot price changes, before the fix is made. Participants can trade the metal and its derivatives on the over-the-counter market and exchanges during the calls.

IOSCO guidelines

Guidelines for financial benchmarks designed to improve integrity and reliability in the wake of the Libor scandal were published by the International Organization of Securities Commissions last year. The principles cover issues of governance and methodology, with one of the key recommendations the use of “observable transactions” as the basis of a benchmark.

The silver fixing, which began in 1897 and is now conducted by Deutsche Bank, HSBC and Bank of Nova Scotia, will end Aug. 14. A London Bullion Market Association survey in May showed the market wants a new silver system to be an electronic, auction- based process with more direct participants and prices that can be used in trades.

Autilla Ltd., Bloomberg LP, CME Group Inc./Thomson Reuters, ETF Securities Ltd. and Platts have also proposed alternatives for a new silver mechanism.

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