After Libor, could silver and gold become the next scandal?
The price of gold has been set in London by five banks since 1919 – but can it be manipulated?
LONDON'S financial sector is bracing itself for a fresh Libor-style price-fixing investigation, following reports that a US regulator is considering launching an inquiry into the City's gold and silver markets.
The Wall Street Journal has revealed the Commodity Futures Trading Commission (CFTC) is examining whether the daily setting of gold and silver prices in London is open to manipulation.
Gold prices in London are set at 10.30am every morning by five banks - Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Societe Generale - in a process that dates back to September 1919. Silver prices are set at noon by the latter three banks, a tradition which began in 1897. The value they set affects both the cost of jewellery and that of the raw materials mining companies can sell.
Now, the CFTC wants to examine the transparency of the process following the furore over rigging of Libor, the rate which banks lend to each other. The scandal led to £390m fines for RBS and £290m for Barclays.
CFTC’s commissioner Bart Chilton has publicly questioned whether "pervasive" or "attempted" manipulation of gold and silver prices is widespread, but a formal investigation is yet to be launched.
"What about energy, swaps, the gold and silver fixes in London and the whole litany of 'bors'?" said Chilton, referring to other lending rates such as Euribor, which sets interest rates at eurozone banks.
Representatives for the banks did not comment on the story but a spokesman for the London Bullion Market Association told the Wall Street Journal the prices were "very much done on a demand-supply basis until a price is arrived at". He added: "It's fully transparent. It's nothing like Libor."