The Secrets of The London Fix
The financial markets aren’t easy to navigate. The sector itself is not known for its transparency and openness. The Gold bullion market is a financial market that has so many secrets that most economists and bankers can’t actually understand it.
There has always been allegations of dishonesty like price fixing. Whether this happens or not, there have been investigation into the industry and some discoveries have been made.
What the findings that the investigations have raised is whether the bullion bankers who are responsible for setting the price of gold are sticking to the rules.
What is bullion banking?
Simply put, gold is traded as a commodity. However, most of the time the gold that is traded doesn’t even move From the vaults that it is stored in at the various bullion banks and central banks that hold the world’s bullion. These banks have to account for the bullion that they store which also means they are responsible for its security. This responsibility confers certain powers to these banks and chief amongst these powers is the setting of the gold price.
The price of gold is set by five members o what is known as “The London Gold Market Fix ltd.” who meet twice a day to determine the benchmark price for gold. The five members represent the five big bullion banks in London. The benchmarks that these banks set helps to determine what the price of gold will be. The price is given in U.S dollar. The Gold price Aud can be higher or lower depending on the strength o the Australian dollar to the U.S dollar. Unfortunately, the practice of fixing the gold price has been under scrutiny.
Allegations of price fixing and Investigations that followed
In 2013, the Financial Conduct Authority, (also known as the FCA) in the UK has been investigated the five bullion banks involved in the Gold Fix. The banks are Barclays, HSBC, Deutsche Bank, Scotiabank and Sociét é Générale.
A few weeks into the investigation, Deutsche Bank, Germany’s largest bank stepped down from the London fix. According the bank, the reason for stepping down was to scale down on their investments into commodities. However, it was common knowledge that the country’s financial regulators were digging into how the bank conducted it’s gold and silver price setting.
The FCA was rather relentless in its investigation between 2013 and 2014. In May 2014, the FCA fined Barclays Bank £26 million for the failure of its systems to prevent the fixing of the gold price over nine years.
The whole price fixing scandal brought the gold pricing system into bad repute. However, the FCA not only uncovered price fixing but it put in measured to prevent more manipulation of the gold from happening.
It was necessary to unveil try secrets of the London fix because gold buyers and sellers or traders around the world relied on what these five bankers were coming up with on a daily basis. Their actions also had an effect on the gold price Aud. It was important for some reckoning to be held and the veil to be lifted on what actually happens in the London Fix.
