Could gold be the next Libor scandal?

[deminks]

http://www.guardian.co.uk/business/2013/mar/13/london-financial-sector-gold-market

London's financial sector was last night bracing itself for another official investigation into alleged price-fixing following reports that a US regulator is considering launching an inquiry into the City's gold and silver markets.

The Commodity Futures Trading Commission is discussing whether the daily setting of gold and silver prices in London is open to manipulation, according to the Wall Street Journal, which stated that the CFTC is examining whether prices are derived sufficiently transparently.

The system of setting gold prices in London is unusual and involves a twice-daily teleconference involving five banks – Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale – while silver is set by the latter three. The price fixings are then used to determine prices worldwide.

The news of the potential investigation comes after analysis of a similarly unusual system - the process used to determine the London interbank offered rate, known as Libor – uncovered manipulation and triggered multi-billion dollar fines against a group of banks.

(end snip)

[Benton D Struckcheon]

1. Maybe a small scandal

It wouldn't have the reach of the LIBOR scandal. LIBOR is used to set all kinds of rates that banks use both to charge their retail customers and to price and value derivatives contracts they trade amongst themselves. It's probably the most commonly used global interest rate there is.
Gold is a small & obscure market in comparison, firstly, and secondly, the London fixing really has no effect on how gold prices are set. Of far greater importance are the gold futures contracts continuously traded on Globex and other exchanges, and the spot price of gold, which is determined via dealers like Kitco. I actually traded gold via a pool account (used principally by wholesale buyers to lock in the price for later delivery) for a while at Kitco, on the advice of my brother, who's in the jewelry business. Gold prices and trading in gold is probably the friendliest market there is for small retail accounts because you can check the price all the time from any number of different sources. For banks it's an unimportant sideshow.
It's basically impossible to run a fraud in the gold market, the paranoid rantings of the way out gold bugs notwithstanding.