For nearly a century, the price of gold has been determined by what has been called the “London Gold Fix”, essentially, a secure telephone call twice a day (as markets open in London and NYC) between four of the world’s largest financial institutions to set the price of gold for the trading day. Yesterday however, The London Gold Market Fixing Ltd and the London Bullion Market Association announced that they are currently launching a consultation among market participants to find a new benchmark administrator.
The current London Gold Fix has long been criticized as an arrangement that could be ripe for manipulation. In fact, earlier this year, a lawsuit was filed in New York alleging that such manipulation has been occurring for decades and Barlcays Plc was fined 26 million pounds in May for allowing a trader to manipulate gold prices.
Until last month, the price of silver was determined in a similar manner. But a new electronic auction system was put into place on August 15th that allows for more transparency and accountability. The Chicago Mercantile Exchange with Thomson-Reuters administer the new silver benchmark. Both organizations have expressed interest in doing the same for gold.
The London platinum and palladium market also put forth a request for proposals to find a new administrator and last month nominated a new independent chairman to oversee the process.
Currently the London Gold Fix is operated by the Bank of Nova Scotia, HSBC, Societe Generale, and Barclays. Deutsche Bank participated in the process for nearly two decades before withdrawing in May of this year.