Photo by: Bloomberg
JOHANNESBURG (miningweekly.com) - A process to reform the current London gold fix has received a leg up as the World Gold Council (WGC) moves to deliver a White Paper on proposed changes to the century-old practice used to determine global gold price benchmarks.
A WGC roundtable of 34 delegates from central banks, bullion banks, refiners, exchange-traded funds and other gold investment product sponsors, exchanges and industry bodies, on Monday, set the path for modernising – as opposed to scrapping – a system that was currently under “intense” scrutiny.
The start of the proposed reform process saw an overwhelming consensus that the gold fix was not “fundamentally broken” and participants were not in support of its abandonment.
However, suggestions emerged of strengthening the system that had worked well for the last 100 years through transparency and governance improvements, WGC central banks and public policy MD Natalie Dempster commented.
“There was strong support for the WGC’s key principles for reform. We believe it should be based on executed trades and a tradable price, should have highly transparent input data, should be calculated from a deep and liquid market, and represent a physically deliverable price,” she said.
The WGC aimed to spend the next few weeks engaging a wider range of stakeholders for inputs, suggestions and views before tabling the final outcomes of a document revealing its views of “optimal reform”, Dempster told Mining Weekly Online.
This emerged as gold and silver fixes, along with other commodity benchmarks, faced increased scrutiny by European and US regulators regarding the processes and methodologies used to set the prices following the London Interbank Offered Rate, or Libor, case of widespread interest rate manipulation in 2012.
The gold fix is set twice a day during a conference call between Barclays, HSBC, Bank of Nova Scotia and Société Générale, which work out a standard price based on transactions between their clients.
The UK's Financial Conduct Authority in May fined Barclays for failures in internal controls that allowed a gold options trader to manipulate the setting of gold prices, in the only report of manipulation Dempster was aware of.
Deutsche Bank, the fifth bank allocated to set the gold price, had put its seat in the gold fix up for sale earlier this year, exiting the process as it shed the majority of its commodity portfolio.
The gold fix also attracted further examination after it was announced that the 117-year-old London silver price benchmark, set by Deutsche Bank, HSBC and Bank of Nova Scotia, would be abandoned on August 14.
The WGC said all the topics discussed at the roundtable, including the requirements and desired characteristics for a reformed gold benchmark, the pros and cons of any alternative price-setting mechanism and the need for a single, trusted benchmark reference price, would be discussed further with all stakeholders.