The House of Commons Treasury Select Committee has been told by the FCA that it has “no clear evidence” that banks have colluded to manipulate gold prices through the Gold Fix. Andrew Bailey, head of Market Infrastructure and Policy, made the comments at a hearing on 2 July.
There have been concerns about the possibility of manipulation of the Gold Fix benchmark for some months, following on from the Libor and FX investigations (see Gold Price Fixing – Is this the next banking scandal?). The FCA has so far not opened an investigation though in May it fined Barclays £26 million for “failing to adequately manage conflicts of interest between itself and its customers as well as systems and controls failings, in relation to the gold fixing”. This followed an incident in which former Barclays’ employee Daniel Plunkett prevented the bank having to pay $3.9 million on an options contract by placing a large sell order shortly before the Gold Fix, which depressed the price on that day below the trigger price on the options contract (see FCA statement). Mr Plunkett was fined £95,000 and banned from performing any function in relation to any regulated activity.
Deutsche Bank, which in May left the panel of banks which conduct the Gold fix, has announced, following the Barclays fine, that it is conducting an internal investigation into trading around the fix. The other banks on the panel are Scotiabank, Société Générale, and HSBC.
Others from whom the Select Committee heard included Rhona O’Connell, head of Metals Research and Forecasts at Thomson Reuters, and Alberto Thomas, a partner at Fideres, a research group working for investors who want to sue banks over alleged manipulation. O’Connell identified, as a major incentive for manipulation, the conflict of interests that lies at the heart of the Gold Fix process in that banks trade both on behalf of clients and on their own accounts. Thomas, suggested that there were strong indications of manipulation and that he estimated the fix was rigged between 10 and 30% of the time.
The committee concluded that the FCA should investigate the claims more fully, though it was pointed out by Mr Bailey that the FCA has no power to regulate the Gold Fix.
This is plainly a developing issue and it seems likely that there is further to be revealed about the practices associated with this 95 year old bench mark.
The Select Committee hearing is available to view here.