WORLD GOLD COUNCIL TO EXPLORE GOLD "FIX" / THE FINANCIAL TIMES

Last updated: June 18, 2014 9:49 am

World Gold Council to explore gold ‘fix’ reform

By Xan Rice

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The World Gold Council is to hold an industry forum “to explore reform of the London Gold Fix” in a move that could hasten the end of the 95-year-old bullion benchmark.

The “fix”, a twice-daily auction-style process run by four investment banks, has come in for increasing criticism for its lack of transparency. Critics say it is vulnerable to manipulation.

The WGC, the marketing body for the gold industry, said on Wednesday it would hold a discussion forum about the fix on July 7 in London. Mining companies, refiners, central banks and bullion banks – the main users of the benchmark – will all be invited. The UK’s Financial Conduct Authority will attend as an observer.

Along with other global regulators, the FCA has increased scrutiny of precious metals benchmarks following the Libor scandal and probe into forex market abuse involving banks. In May, the FCA fined Barclays $26m for lax controls after one of its traders influenced the gold fix to avoid paying out on a derivatives contract.

“The fixing process was established almost a century ago, so it is not surprising that it needs to change to meet today’s market expectations for enhanced regulation, transparency and technology,” said Natalie Dempster, the WGC’s managing director for central banks and public policy.

“Modernisation is imperative in order to maintain trust across the industry. This could come in the form of reform to the fix to bring it in line with the Iosco principles or it could see an alternative price benchmark emerge.”

The London silver fix, which operates in a similar way to the gold benchmark, will be abolished in August, after the withdrawal of Deutsche Bank left only two other banks in the auction.

Ten organisations have submitted proposals to operate a replacement silver benchmark, including the London Stock Exchange, the Chicago Mercantile Exchange, Platts, Thomson Reuters and ETF Securities. The possibility of the benchmark for gold – a much bigger market – also being overhauled has heightened the interest. If the fix moves on to an exchange, that exchange may also capture some of the over-the-counter market, which is currently controlled by investment banks.

The banks that run the gold fix are Barclays, HSBC, Société Générale and Scotiabank.

The WGC identified five principles to which any reformed fix or replacement should adhere. The benchmark should be based on executed trades, have a tradeable price as opposed to just a reference one, and be physically deliverable. It should also be calculated from a deep, liquid market and be “highly transparent, published and subject to audit”, the WGC said.

Copyright The Financial Times Limited 2014