FCA Observing Banks' London Gold-Fixing Telephone Calls

The financial regulator has visited French bank Societe Generale's (SG) London offices to observe the so-called London gold fixing process, an age-old pricing of gold twice daily, as it examines the $20tn gold market for signs of misconduct.

The Financial Conduct Authority (FCA), which is examining how gold prices are calculated, observed the morning and afternoon conference calls at SG, during which the reference price used by central banks, jewellers and miners is determined, Bloomberg reported.

Five banks oversee the near century-old process of determining the prices of the yellow metal – Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC and Societe Generale.

The watchdog is expected to make visits to the other banks as well. So far, the FCA has not accused anybody of manipulating the price of gold.

Spokespersons for the FCA and the banks refused to comment.

"The FCA is clearly trying to educate itself on the mechanics of benchmark-setting in the gold market," said Simon Hart, a London-based lawyer at RPC.

"It demonstrates that the FCA is looking into the suggestion that there has been benchmark rate manipulation, although that is very different from a formal investigation," Hart told Bloomberg.

The five banks have been accused in a US lawsuit of manipulating the London gold fix.

Probable Manipulation

Reports surfaced in late February that the London gold fix may have been manipulated for 10 years by the banks setting it.

A research paper looking into the possible manipulation of the benchmark was authored by New York University's Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody's Investors Service.

Bafin Probe

South Africa's Standard Bank could replace Deutsche Bank's in the global gold price-setting process, Reuters reported in February.

Deutsche Bank, Germany's biggest lender, said in January that it would withdraw from the panels determining the gold and silver fixings. German financial markets regulator Bafin interviewed the Frankfurt-based bank's staff as part of a probe into the probable manipulation of gold and silver prices.

The London-fix is used to determine the prices of the precious metal the world over. The fix is calculated twice a day on telephone conferences at 10:30 hrs and 15:00 hrs London time. The calls usually last 10 minutes but can last for more than an hour.

Prices are adjusted up and down until demand and supply are matched, at which point the gold price is declared "fixed".