It has been reported by Bloomberg and in MoneyMarketing that the Financial Conduct Authority (FCA) in the UK is undertaking a review of the way gold price benchmark setting is carried out as part of a wider investigation into global rates. As summarised in our Technical Pages, London Gold Fixing is set twice per day at 10:30am and 3pm by a group of five banks.
It is not clear yet whether there is anything specific that the FCA is looking for, although it is reported that this historic and traditional custom of setting the daily prevailing market price for Gold appears to have worked well for many years without any of the particular problems which have recently plagued the banks such as the LIBOR rigging scandals. Nevertheless, it is expected in some quarters that the regulator is looking at whether such a situation could ever arise under the current system and whether a different more robust approach to price setting and control is needed.
If a more automatic system of computerised average price setting is to be considered as a preferred option, then no doubt there will need to be a full analysis carried out to determine the impact on speculative market pricing and the market as a whole if such computerised algorhythmic benchmarking were to be introduced.
London Gold Benchmark Pricing Technical Matters…
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