London Gold Fixing Seen Getting New Administrator This Year

Jul 29, 2014 2:09 pm ET

(Updates with LME statement in 11th paragraph.)

July 29 (Bloomberg) -- The banks that conduct the century- old gold fixing and the London Bullion Market Association will seek proposals next month for a new administrator to run a revamped process for the benchmark by year-end.

The London Gold Market Fixing Ltd., which manages the procedure, and the LBMA will open a market consultation in late August and plan to announce a third-party administrator by the end of September, the association said in a statement today. The process will be open and not restricted to firms who pitched to run a mechanism that will replace the silver fixing on Aug. 15.

The gold fixing company said July 16 that the LBMA will help with a request-for-proposals exercise and that it’s seeking an independent chairman for the price-setting ritual that takes place twice a day by phone. A similar process for silver will be replaced by an electronic, auction-based mechanism run by CME Group Inc. and Thomson Reuters Corp. next month after Deutsche Bank AG’s planned withdrawal would leave just two banks to conduct fixings for that commodity.

“It seems as though everyone is very happy with the concept of a platform-based mechanism for silver, so I’m quite sure it will go that way again,” said David Govett, the head of precious metals at Marex Spectron Group in London. “If the CME/Reuters combination is good enough for the silver fix, it should work just as well for the gold fix.”

Deutsche Bank’s exit from the gold process this year as it scales back its commodities business left Societe Generale SA, Bank of Nova Scotia, HSBC Holdings Plc and Barclays Plc to conduct gold fixings that are used by miners and central banks to trade and value metal.

Fixing Price

Gold was fixed at $1,299.25 an ounce in London this afternoon. Bullion for immediate delivery has gained 8.2 percent this year, after slumping 28 percent in 2013 in its biggest annual decline in three decades. About $18 trillion of gold circulated globally last year, according to CPM Group, a New York-based research company.

During fixings, member banks declare how much metal they want to buy or sell for clients as well as their own accounts. Traders relay shifts in supply and demand to clients and take fresh orders as the spot price changes, before the fix is made. Participants can trade the metal and its derivatives on the over-the-counter market and exchanges during the calls. The process dates to 1919 for gold and 1897 for silver.

‘Improved Transparency’

The gold fixing company and the LBMA will continue discussions with the U.K.’s Financial Conduct Authority and market participants, according to today’s statement. The World Gold Council hosted a meeting on July 7 where 34 delegates including producers, refiners, and exchanges discussed the gold benchmark. The industry wants an independent party to administer the rate as well as improved transparency, the council said.

Precious metals are getting more attention from regulators after price-rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks. The FCA in May fined Barclays after a trader sought to influence the gold fix in 2012. The regulator has been visiting member banks involved in the gold fixing this year as part of its review of gold benchmarks, a person with knowledge of the matter said in April.

The LBMA said on July 11 that CME Group and Thomson Reuters will run a replacement for the silver fixing benchmark, which takes place each day at noon. The London Metal Exchange, Autilla Ltd., Bloomberg LP, Intercontinental Exchange Inc., ETF Securities Ltd. and Platts had also proposed alternatives.

Benchmark Model

The LME would like to “engage with LGMFL, the LBMA and other stakeholders” in the process, according to a statement today from the bourse. CME Group said July 17 that it would participate in a proposal process for gold with Thomson Reuters. A day earlier, Autilla said it’s developing a model for a daily gold benchmark price.

“The bullion market needs, initially, to concentrate on the London silver price implementation which is in its final stages of testing,” Ruth Crowell, chief executive of the LBMA, said in the statement. “We look forward to focusing on gold from late August.”

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