According to sources in the financial sector, the U.S. regulator is currently conducting an investigation for possible manipulation of prices in the world's largest gold market, London.
The pricing method used in London is now put under analysis by the Commodity Futures Trading Commission (СFTC). Gold prices are set there by several banks, whose representatives meet twice a day to fix the spot price per troy ounce of physical gold, sources said.
In particular, СFTC experts are assessing the degree of fixing transparency. So far, the investigation is not official. The inspection of pricing in the gold and silver markets started after a scandal involving LIBOR. Barclays, Royal Bank of Scotland and UBS agreed to pay a total of $ 2.5 billion in fines for manipulation.
СFTC analysts are to find out whether gold prices in the main global market were controlled by five banks - Barclays, Deutsche Bank AG, HSBC Holdings PLC, Bank of Nova Scotia and Société Générale SA.
Jewelry prices all over the world are influenced by the London gold fixing. It defines the benefits that will be derived by gold mining companies from their sales to manufacturers and indicates the value of financial derivatives, the prices of which are associated with metals.
The CFTC neither confirmed nor denied the investigation, while the representatives of the above banks refused to comment.
According to a representative of the London Bullion Market Association, the fixing methods are rather based on supply and demand and do not have anything in common with LIBOR. Since 1919 gold prices are set by telephone between banks. In the case of gold this takes place in strictly defined hours, between 10:30 and 15:00 London time.
The CFTC investigation alarmed the business community. Commission head Gary Gensler previously called for reforming LIBOR and other evaluation criteria to ensure their conformity to real transactions and not to assessments offered by industrial companies.
In case of LIBOR traders could have provided false information in order to ensure greater profitability.
Gold is generally regarded by investors as a more reliable alternative to volatile currencies and corporate equities prone to severe fluctuations. The price of this precious metal has been rising for 12 consecutive years. However, in 2012 the growth was minimal over the past four years gaining mere 7%. In February 2013, gold went down in price by 0.8%.
Alex Shishlo, Editor in Chief of the European Bureau, Rough&Polished
