South African Bank Seeks Seat on London Gold Fix Team

The resignation of Deutsche Bank from the price-setting process for gold and silver, known as the London fix, has left the door open for South Africa's Standard Bank and China’s Industrial and Commercial Bank (ICB) to fill the vacancy.

Although the application is being made by Johannesburg-based Standard Bank, ICB recently purchased as much as 60 % of some of Standard Bank’s operations.

Reuters news agency reported that one of its sources believes Standard Bank is a shoo-in for the fixing seat. They apparently desperately want to be in on the London fix process and such a move would be acceptable to the other members.

The one stumbling block may be the entrance fee and whether current members and the South African bank can agree according to Reuter’s source.

Reuters said the last vacancy on the London fix occurred in 2004, when NM Rothschild and Sons sold theirs to Barclays for a reported $1 million.

According to the Reuters report, ICB, the globe's largest bank in terms of market value and assets under management, set up its precious metal department in 2009 and has been building its presence in the gold market since. ICB wants to expand overseas.

One ICB’s major investment closer to home in Northeastern Ontario is its backing of Northern Sun Mines which recently bought Liberty Mines and mill just west of Timmins, Ontario. Liberty Mines was a nickel producer, but since Northern Sun Mines purchase it the company announced it would now be concentrating on gold production. Chinese banks including ICB have approximately 60% stake in Northern Sun Mines.

A fortnight ago, ICB announced the purchase of the London commodities-focused arm of Standard Bank, Africa's largest bank, in which it already owns a 20% stake.

Furthermore ICB has purchased 60 % of Standard Bank’s London Unite for $765 million, thereby gaining access to a well-established commodities, credit and forex trader with affiliates and operations in all the major trading hubs including New York, Hong Kong, Tokyo and Shanghai.

ICB is a colossus in banking with more than four million business clients and services 410 million retail customers. It also has acquired a five-year option to purchase another 20% of Standard Bank's global markets unit for up to $500 million in cash.

 In October, the UK made it easier for Chinese banks and investors to trade inside the country and London is already responsible for the bulk of trading in renminbi outside China. The renminbi (RMB,) is the official currency of the People’s Republic of China. The yuan is the basic unit of the renminbi, but is often cited as the official Chinese currency in North America and Western Europe.  

Late last year, the UK's Financial Conduct Authority began an investigation into the way gold prices are set every day in London by five banks – Deutsche, Scotiabank Canada, Barclays, HSBC and Société Générale – acting as market makers in an obscure process that dates back to 1919.

The investigation into the London gold price fix came after Libor (London Interbank Offered Rate) referenced in trillions of dollars of derivative and other financial transactions was being manipulated.

The London Bullion Market Association told Reuters that total trading volume in gold per day is some $240 billion, but only a tiny fraction of the total is ever physically settled.