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Gold Price’s ‘London Fix’ Under Fresh Regulatory Scrutiny: Bloomberg
Gold Price’s ‘London Fix’ Under Fresh Regulatory Scrutiny: Bloomberg
Originally posted by barrons/conway
By Brendan Conway
Bloomberg News’ Liam Vaughan, Nicholas Larkin and Suzi Ring have details on a fresh review by the U.K. Financial Conduct Authority of the London fix — the daily process whereby five banks meet to set the price of gold. The concern: Knowledge gained on the call may give traders an unfair edge when they buy and sell the precious metal.
If you’re reminded of the Libor fixing scandal, that’s because there are similarities:
Bloomberg News’ Liam Vaughan, Nicholas Larkin and Suzi Ring have details on a fresh review by the U.K. Financial Conduct Authority of the London fix — the daily process whereby five banks meet to set the price of gold. The concern: Knowledge gained on the call may give traders an unfair edge when they buy and sell the precious metal.
If you’re reminded of the Libor fixing scandal, that’s because there are similarities:
- Bloomberg
The process, during which gold is bought and sold, can take from a few minutes to more than an hour. The participants also can trade the metal and its derivatives on the spot market and exchanges during the calls. Just after the fixing begins, trading erupts in gold derivatives, according to research published in September. Four traders interviewed by Bloomberg News said that’s because dealers and their clients are using information from the talks to bet on the outcome.
“Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people’s knowledge,” said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. “That is the great flaw of the London gold-fixing.” …
There’s no evidence that gold dealers sought to manipulate the London fix or worked together to rig prices, as traders did with Libor. Even so, economists and academics say the way the benchmark is set is outdated, vulnerable to abuse and lacking any direct regulatory oversight.
SPDR Gold Trust (GLD) is down 0.3% Tuesday morning. Market Vectors Gold Miners ETF (GDX) is down 1.4%, while leveraged ETFs Direxion Daily Gold Miners Bear 3X Shares (DUST) and Direxion Daily Gold Miners Bull 3X Shares (NUGT) are moving about 5% apiece.“Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people’s knowledge,” said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. “That is the great flaw of the London gold-fixing.” …
There’s no evidence that gold dealers sought to manipulate the London fix or worked together to rig prices, as traders did with Libor. Even so, economists and academics say the way the benchmark is set is outdated, vulnerable to abuse and lacking any direct regulatory oversight.