Is gold the new LIBOR?

March 14, 2013

It has been reported that the US Commodity Futures Trading Commission (CFTC) is examining whether the daily setting of gold and silver prices in London is open to manipulation. The historical process of gold and silver price setting in London dates back to the late 19th Century. The process currently involves Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale, who between them set the prices on a daily basis. These fixings are then used to determine spot prices for the billions of dollars of the two precious metals which are traded each day worldwide.

This report undoubtedly strikes another blow to perceived levels of trust and confidence in the UK Financial Services Sector, which is still in the throes of a very public clean up as a result of the ongoing global investigation into LIBOR rigging. Barclays, along with others, was issued with a significant fine for its part in that scandal and is currently wrestling hard to rebuild its tarnished image as a result. The Commissioner of the CFTC, Bart Chilton is reported as saying "given the clubby maipulation efforts we saw in LIBOR benchmarks, I assume other benchmarks - many other benchmarks - are legit areas of inquiry".

Whilst the CFTC has not launched a formal investigation as yet, there is no doubt that the levels of transparency in the precious metals markets will come under much greater scrutiny over the coming months. Dependant upon the findings of the CFTC, it may very well be that there will be calls for the current historical process of price setting to be updated along the lines of the LIBOR reforms, to ensure that they are sufficiently transparent. 


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