“When I read the reports on what people had been doing to it, I was horrified,” Hambro told Bloomberg. “It is something that is really important to people in the industry. It’s something that we use in a big way as we deliver our gold, that’s how we price.”
A $44 million fine was levied earlier this year against Barclays PLC after it was discovered that one of their traders had attempted to influence the gold fix in 2012.
Gold fixing takes place twice a day, at 10:30am and 3pm London time, during a conference call between the largest banks in the world. It sets a benchmark for pricing the majority of gold products and derivatives for each trading day and has been taking place daily since September 12, 1919.
The first gold fix was conducted in person, at the London offices of N.M. Rothschild and Sons. Now it takes place via a secure, dedicated phone conferencing system. The calls are typically short, lasting around ten minutes or so, but they have also been known to go on for more than an hour.
Manipulation of the gold fix has been long understood by financial insiders to be taking place, but until recently, it was publicly treated as a conspiracy theory.
It wasn't until earlier this year that unusual trading patterns occurring at or immediately after the afternoon call were exposed in a research paper by NYU Business professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody's Investor services. During large moves, the price moved down 92 percent of the time.
The paper states, “The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality... It is likely that co-operation between participants may be occurring.” It is believed that the manipulation has been occurring for decades.
These banks have a vested interest in keeping gold undervalued because it helps to strengthen their currency reserves and allows them to purchase gold at a lower price than what it is actually worth.
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