Researchers Suggest Banks Might Be Rigging Gold Prices

Gold has drawn glowing praise in the last six years or so, since the onset of the recent recession — and now, according to a duo of researchers, it ought to be the subject of a different kind of attention that calls into question the way its price is set.

The London gold fix is the focus of a draft paper by Rosa Abrantes-Metz and Albert Metz, as the Sydney Morning Herald reported earlier this week:

Unusual trading patterns around 3 pm in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behaviour and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.

“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”

The paper is the first to raise the possibility that the five banks overseeing the century-old rate – Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC and Societe – may have been actively working together to manipulate the benchmark. It also adds to pressure on the firms to overhaul the way the rate is calculated. Authorities around the world, already investigating the manipulation of benchmarks from interest rates to foreign exchange, are examining the $US20 trillion gold market for signs of wrongdoing.

Looks like this warning shot hasn’t gone unheeded; Reuters reported on Wednesday that the five banks that set the gold price have now been accused of price manipulation in a class-action lawsuit filed Monday in a U.S. federal court in New York.

–Posted by Kasia Anderson