The London Fix, a committee of five London-based banks that set gold prices, is under review over suspicions prior knowledge gives some traders an advantage of whether the value of precious metals will go up or down. The U.S. Commodity Futures Trading Commission, which regulates derivatives, says some traders are given an unfair advantage buying and selling the precious metal.
The London fix is the benchmark rate used by mining companies, jewelers and central banks to set the price of their products. It only takes a couple of minutes to buy and sell precious metals and investigators are claiming that prior knowledge of gold prices set by representatives of Barclays Plc, Deutsche Bank, Bank of Nova Scotia, HSBC Holdings, and Societe Generale give their trading contacts a heads up.
According to the London Bullion Market Association (LBMA), London is the largest centre for gold trading in the world. Using data compiled by Bloomsburg the LBMA reported that more than $33bn of precious metals was traded through the London stock market.
Trust in gold prices
Gold traders, academics and financial investors are all calling for a review of the London Fix. The five lead banks are accused of trickling information through to hand-picked traders so that they can cash in before the day´s trading figures are made public. Traders from elsewhere around the world says the system needs to be regulated so there is global trust in gold prices.
However, the question of leaking privileged information is only an allegation as there is no evidence to suggest select gold dealers are being drip-fed information. However, the reform calls into question that the regulatory practice which began in 1919 is now outdated and vulnerable to manipulation.
The London Fix on the other hand is a very efficient way for derivative traders to buy and sell gold and silver bullion. The process is very open and transparent, structured to minimize the chance of exploiting the difference between spot chart values and fixed prices.
The Fix also benefits traders to accurately predict the direction prices will go and most of the time traders get it right. Those in support of the current pricing system say the information is made public too quickly for anyone to have an advantage.
Investing in gold
The precious metals market is particularly volatile because of the number of things that can influence it and gold is used as a safe haven for edge funds. Buying and selling gold or silver is therefore a matter of timing. If you want to ensure your investment makes a profit go long-term.
Gold bullion purchases always make a profit in the long run and reputable online dealers offer excellent rates for buying and selling. If you are thinking of investing in gold or silver, visit coininvest.com for a fair price.