Gold Benchmarks Said to Be Reviewed in U.K. Rates Probe

The U.K. Financial Conduct Authority is reviewing gold benchmarks as part of its wider probe of how global rates are set, a person with knowledge of the matter said.

The FCA review is preliminary and hasn’t risen to the level of a formal investigation, said the person, who asked not to be identified because the matter isn’t public. The person declined to say which gold benchmarks were under scrutiny.

One of the key benchmarks is the London gold fixing, a measure of the spot price for physical gold that is set twice daily by five banks. At private Commodity Futures Trading Commission meetings this year, the U.S. derivatives regulator discussed reviewing how gold benchmarks are set, according to a person with knowledge of the matter.

“We’ve seen a pattern of this sort of scrutiny across markets,” said Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. “I don’t think this will have a big price impact in gold, but it could change the way markets are traded.”

Regulators around the world are examining alleged abuses of a number of financial benchmarks by companies that play a central role in setting them. Inquiries were triggered after it emerged the London interbank offered rate, or Libor, the benchmark interest rate for more than $360 trillion of securities worldwide, was being manipulated.

Sparked Reviews

The scandal also sparked reviews of how to improve how rates are set, so as to prevent them from being rigged in the future, and which ones should have formal oversight.

Steve Adamske, a spokesman for the CFTC, and Lara Joseph, a spokeswoman for the FCA, declined to comment on the review.

In addition to Libor, regulators including the FCA are investigating rate-rigging in the $5.3 trillion-a-day foreign-exchange market, and ISDAfix, a benchmark for interest-rate swaps.

Separately, the FCA will publish an update on its approach to supervision of commodities markets, including gold, before the end of the year, Joseph said.

Commodities traders who buy and sell as much as $5.67 trillion of raw materials a year say the benchmark prices for everything from oil to iron ore to gasoline are wrong as often as 27 percent of the time, according to a Bloomberg survey completed this year.

The London gold fixing is conducted twice a day by Barclays Plc, Bank of Nova Scotia, Deutsche Bank AG, HSBC Holdings and Societe Generale SA. The pricing, started in 1919, was conducted in a meeting held for 84 years at N.M. Rothschild & Sons Ltd.’s offices, and started taking place over the telephone in 2004.

Mining Companies

Some mining companies use the fixing to sell output.

Trading in gold fell to an average 18.5 million ounces in September from 22.2 million in August, the London Bullion Market Association said in an Oct. 31 report posted on its website.

Gold for immediate delivery fell 0.3 percent to $1,271.70 an ounce by 9:21 a.m. in London. Prices fell 24 percent this year.

“It’s another indictment perhaps of the lack of oversight in many markets,” O’Neill said of the FCA review. “Certain things that may have been considered acceptable before are not now. It may not be that things have gotten worse. It just may be that there’s more scrutiny.”

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