Price fixing by five London banks in the $20 trillion gold market under scrutiny by the FCA

Posted on 27 November 2013 with no comments from readers

The UK’s watchdog the Financial Conduct Authority is scrunitizing how gold prices are set by five London banks twice daily in a series of telephone calls that gives them privileged information in advance of the rest of the market that it would be ridiculous if they did not use to unfair advantage, reported Bloomberg today.

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It could be the opening shot in a formal investigation which has not yet been called, and may be the precusor to a scandal like the Libor interest rate though clearly these are early days. Five banks were fined $3.7 billion for rigging the Libor rate.

London fix

The so-called ‘London fix’ is published twice a day after unmonitored, private telephone conversations between Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC and Societe Generale. These discussions can take a few minutes or over an hour and the participants are free to trade in the precious metal during this time.

That means the traders of these banks have insider market knowledge on which to trade. Information moves down from the five banks to their clients and finally to the broader market. It’s an antiquated system that dates from a time long before electronic trading made such information literally gold dust.

There is no evidence of wrong doing at the banks doing the ‘London fix’ but you don’t need to be a genius to see that this is system needs to be reformed. It dates back to 1919 when five dealers used to meet in the Rothschild’s office though they pulled out in 2004 leaving the current members running the show.

Gold price manipulation

For gold bugs this is the thin edge of a very large wedge. Gold price manipulation by global central banks is widely alleged and sometimes so obvious a child could spot it.

The whole slump in the gold price this year could well turn out to have been the work of the Fed in a desperate attempt to support the dollar with the collusion of the bullion banks. It’s a self-protection racket that no official investigation or scrutinization ever seems to budge.