London, April 27: A light will be shone on the secretive world of setting gold prices in a review launched by the UK Financial Conduct Authority (FCA), which is studying whether gold market benchmarks are operating properly in the wake of the Libor scandal.
The regulator has started to gather information from market participants about the London gold fix, the benchmark price used worldwide to price the precious metal. The FCA is visiting all five banks that hold seats helping to “fix” the price of gold twice a day, once in the morning and again in the afternoon. It may analyse documents and policies, interview traders and examine IT systems.
The banks, none of which are suspected of wrongdoing, talk on conference calls each morning and afternoon to agree their best guess of what the gold price should be, then release the estimate as a benchmark price, a process that has existed since its establishment by NM Rothschild in 1919.
Rothschild is no longer a member of the panel. For the present members — Deutsche Bank, HSBC, Scotiabank, Barclays and Societe Generale — having a seat could become a headache rather than a coveted line into the precious metals markets.
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The miners have started 2014 very well indeed on the back of rising gold prices, so the question is; is this the real deal or another head fake? Is the bottom really in? Could there be a final capitulation just ahead of us? Will the summer doldrums take the PMs lower?
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