The Commodity Investor: Gold Price Manipulation Smoke Needs Inspecting
This process has come under scrutiny for several reasons. First, the meeting is held in secret by five banks; this secretive component tends to raise questions and doubts among market participants that are not included in the process.
Second, the article alleges some of these banks of taking advantage of their knowledge of the contents of the meeting in order to gain an unfair advantage for their own prop desks as well as for their clients.
Finally, suspicion has been cast on the London Gold Fix as a result of the Libor scandal that hit London recently. Libor, the London interbank offered rate, is a benchmark used to price trillions of dollars of securities based on this interest rate. Authorities discovered that several investment banks that were involved in this price-setting mechanism were not only abusing their privileged positions in the price-setting decisions to their benefit, but in some cases were actually providing false information in order to establish artificial and false rates for their own benefit.
The Libor scandal has certainly given a lot of credence to the participants in the gold space that have been claiming market manipulation in the precious metals industry for years. Giving credibility to these claims, the Commodity Futures Trading Commission recently came out with a judgment that the gold-price-setting mechanism needs to be reviewed to provide more transparency to the markets.