New York court to rule on most London gold fix lawsuits

A New York court will be in charge of processing 18 of the 27 lawsuits related to the gold fixing currently before U.S. federal courts, the Judicial Panel on Multidistrict Litigation has ruled.

The cases, reports Reuters, will be sent to U.S. District Judge Valerie Caproni in Manhattan, who has already been overseeing a putative class-action against the five banks that make up what is known as the London gold fix filed by Edward Derksen on July 9.

The lawsuits, placed by hedge funds, private citizens and public investors such as the Alaska Electrical Pension Fund, contend the banks used their privileged positions as market makers to rig the price of gold to their benefit.

The proceedings — the first of which was filed in March — were among the initial questions raised about the integrity of the gold fix, which dates to 1919.

Members of the World Gold Council, the industry body for the precious metal, gathered in London last month to study alternatives for a revamped price setting process.

Shortly after, Bank of Nova Scotia, HSBC, Societe Generale, and Barclay said they aim to have the new benchmark operational by year-end.

Pushing for change

The purpose of the century-old process is to set a benchmark price for gold, which is subsequently used by dealers, central banks and mining firms to buy and sell the precious metal and its various derivatives.

Firms declare how many bars of gold they want to buy or sell at the current spot price, based on orders from clients and themselves. The price is increased or reduced until the buy and sell amounts are within 50 bars, or about 620 kilograms, of each other, at which point the fix is set.

The industry has been pushing for a change as of late. Members of the World Gold Council met in London last week to discuss the issue, but did not reach an agreement.

Financial benchmarks have come under strong scrutiny from regulators around Europe and the United States since 2012, when it became public that British banks had rigged the London Interbank Offered Rate (Libor).

In January Deutsche Bank announced its exit from the price-setting process, amid investigations by German regulators over suspected price manipulation.