Swiss gold rigging probe won't have price impact

The Swiss competition commission on Monday announced it was opening an investigation into possible collusion between seven large banks to manipulate the gold price.

The authority said it believes Swiss banks UBS and Julius Baer co-ordinated with with foreign banks Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui to manipulate bid ask-spreads in gold, silver, platinum and palladium trading.

Switzerland is the global centre for gold and precious metal refining and the main conduit for the physical bullion trade between east and west.

The Swiss probe comes after the US Department of Justice announced in June it is investigating at least ten banks for possible price manipulation of gold, silver and other precious metals, certain crude oil benchmarks and US government bonds following similar cases against Wall Street’s biggest financial institutions.

In 2013 BaFin, Germany's financial supervisory authority, also held an investigation into precious metals pricing, but found no evidence of manipulation.

The impact of the probes on wider precious metals trading was likely to be muted, Brian Lucey, professor of finance at the School of Business, Trinity College Dublin told Reuters:

"The question is not if individuals, or groups of individuals are collaborating to rig the game for themselves, the question is if this has any material effect," he said.

"I'm not convinced collusive behavior will have a meaningful effect micro-economically to the structure of gold trading around the world."

The more than a century-old London gold fix which used an antiquated telephone-based auction system setting prices twice a day was abandoned last year and replaced with an automated electronic system. The fix was used as the benchmark price for contracts in the jewellery, bars and coins trade.

On the futures market gold for delivery in December dropped more than 1% to $1,131 an ounce on Monday, while silver decline nearly 4% to trade at $14.53 an ounce. Platinum continued its post-dieselgate decline to reach a low of $922 an ounce, while palladium fell back to $652 an ounce after a 10% jump last week.