The gold industry wants an independent party to administer the bullion price benchmark and “better transparency,” according to the World Gold Council.
The council yesterday hosted a meeting for the industry to discuss changes to the century-old price-setting mechanism, which is used by mining companies to central banks to trade and value the metal. Thirty-four delegates including producers, refiners, central banks and exchanges met in London to discuss the fixing, which is set daily by four banks.
“We need better data reporting, we need to be able to see what flows go through the fix and visibility of data,” Natalie Dempster, managing director of the group’s central banks and public policy unit, said today in an interview on Bloomberg TV’s Countdown. “We didn’t have today’s modern technology when this system was set up.”
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.
The fixing takes place at 10:30 a.m. and 3 p.m. in London by phone with Societe Generale SA, Bank of Nova Scotia, HSBC Holdings Plc and Barclays Plc representing themselves and clients. The U.K.’s Financial Conduct Authority, which was represented at yesterday’s meeting, fined Barclays Plc 26 million pounds ($44.6 million) in May after a trader sought to influence the gold fix in 2012.
“The visibility really has to be improved so that we can have independent and visible audits,” Dempster said.
While there’s “no clear evidence” of manipulation during the London gold fixing it’s possible it occurred, David Bailey, director of financial markets infrastructure and supervision at the FCA, said at a U.K. Treasury Select Committee hearing July 2. 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 reformed gold fix should be based on executed trades, have “highly transparent input data,” calculated from “a deep and liquid market,” and represent a physically-deliverable price, the WGC said in a statement yesterday.
There should be a single benchmark, discovery process continuity and a local London price to reflect the liquidity available in the primary trading center for gold, according to the council. It should also reflect a full range of market participants and meet the International Organization of Securities Commissions’ principles, it said.
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.