German gold price probe extended to Deutsche Bank

Section:

By Alice Ross
Financial Times, London
Thursday, December 12, 2013

http://www.ft.com/intl/cms/s/0/b386aa16-6358-11e3-886f-00144feabdc0.html

FRANKFURT, Germany -- Germany's financial regulator has demanded documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.

The probe from the German watchdog comes as regulators around the world step up their scrutiny of benchmarks after the recent Libor interbank lending scandal led to hefty fines for banks.

BaFin has grilled Deutsche Bank staff during several on-site inspections in the past few months, said people familiar with the matter, in a sign of how seriously the German regulator is scrutinising the precious metals markets.

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Deutsche Bank is one of five banks that take part in the twice-daily "London gold fixing," and one of three banks that take part in the equivalent process for silver.

The UK's Financial Conduct Authority has also been looking at precious metals as part of a broader review of financial benchmarks. With an estimated 175 million ounces of gold, worth $215 billion at today's prices, changing hands daily on the over-the-counter market, London is the global centre of gold trading. However, the FCA has not launched a formal investigation.

Some bankers believe BaFin has come under pressure to show it is willing to get tough on suspected market manipulation. It was widely seen to have been slow to respond to the concerns over possible manipulation in the forex market expressed by other regulators around the world earlier this year.

Although the gold and silver fixings are, like Libor, set by small groups of banks, they contrast with the process for setting Libor in that they are based on trading activity rather than theoretical quotes.

Executives at major gold traders say their contact with the FCA on the subject has so far been largely limited to general questions. But the German regulator's probe into the foreign exchange market has moved beyond informal discussions with banks. BaFin is now asking for information in the form of emails and documents, said a person familiar with the situation.

The visit to Deutsche offices signals that BaFin now has greater concerns over the precious metals markets. Officials have asked to observe documents and processes related to precious metals trading as well as to interview bankers, the person said.

BaFin confirmed that it had been looking into the possible manipulation of gold and silver prices, as well as foreign exchange benchmark rates, since the summer, but declined to comment on specific institutions. The regulator first confirmed it was conducting a probe into the gold and silver market in November.

Deutsche Bank declined to comment.

The London gold fixing has been a benchmark for the market since the end of the first world war. Until 2004, the fixings were conducted in person at the London offices of Rothschild and each trader had a Union flag on his desk which he lowered to indicate that he had concluded his business.

The other banks that take part in the gold fixing are Barclays, Bank of Nova Scotia, HSBC, and Societe Generale. The other banks involved in silver fixing are Bank of Nova Scotia and HSBC. As the only German member of either fixing, Deutsche is the only bank to come under BaFin's remit.

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