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The Secret World of Bullion Banking: Who Sets Gold Prices?

The financial sector has never been known for its transparency or forthrightness. In fact, it’s probably the single most mysterious industry there is. Bullion banking is so shrouded in secrecy that even most bankers don’t understand it. Recently, bullion bankers have come under fire for allegedly dishonestly fixing gold and silver prices. Whether or not the allegations are true, the ongoing investigation into bullion banking has led to some surprising discoveries about the industry. The question raised by the investigation is whether or not some bullion bankers are playing by the rules.

Bullion Banking: The Basics

To put it in terms everyone can understand, bullion banking is the trading of precious metals as commodities. Bullion is incredibly expensive to store and insure, so the central banks that hold bullion bars are indispensable. Since bullion is a heavily traded commodity, these central banks are relied on to properly account for the bullion, and they, in turn, help set the prices. 

Gold prices are set by what’s known as “The London Gold Fix.”  Twice each business day, five members of The London Gold Market Fixing Ltd. meet to determine gold trading prices, which are known as “benchmarks.” The five bankers each represent one of the five biggest bullion banks in London. The prices established by these bankers help determine gold prices internationally. Unfortunately, this fixing ritual, among others, is under scrutiny. 

The Allegations and Investigations 

Last November, the UK’s Financial Conduct Authority (FCA) began investigating the five bullion banks involved in The London Gold Fix: Sociét é

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