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* Five 'fixing' banks for gold reduced to four
* Market benchmarks being reviewed in wake of Libor affair
By Jan Harvey and Veronica Brown
LONDON, Jan 17 (Reuters) - European regulators includingGermany's Bafin are looking more closely at how banks setbenchmarks such as the twice-daily spot gold price fix after theLibor rigging scandal exposed widespread interest ratemanipulation.
Deutsche Bank said on Friday it was pulling outof the group of banks that set the benchmarks for gold andsilver prices after London's century-old price-setting process,known as 'fixing', came under increased scrutiny last year.
Allegations that currencies and precious metals are beingmanipulated are particularly serious, Bafin President ElkeKoenig said on Thursday, because such reference values aretypically based on real transactions in liquid markets, and noton estimates of the banks such as for LIBOR and Euribor.
"It's understandable that this topic is making big waves,"she said in a speech. "Markets depend on the trust of the widerpublic that they are performing and that they work honestly."
Bafin declined to comment on Deutsche Bank's decision toleave the gold fix. The Financial Times reported in December,citing sources, that the regulator demanded documents fromDeutsche Bank as part of a probe into suspected manipulation bybanks of benchmark gold and silver prices.
A source close to Britain's Financial Conduct Authority(FCA) said the regulator was doing a lot of work on allbenchmarks, including commodity benchmarks and gold. "So thereis a renewed regulatory focus on that," the source said.
The U.S. Commodity Futures Trading Commission (CFTC) saidlast March it had started internal discussions on whether thedaily setting of gold and silver benchmarks is open tomanipulation.
WHAT IS THE FIX?
The fixing of the gold price in London dates back to 1919,originally involving NM Rothschild & Sons, Mocatta & Goldsmid,Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins. Silverprice-setting started in 1897.
Gold fixing happens twice a day in a teleconference betweenbanks, which numbered five prior to Deutsche Bank's withdrawaland also included Bank of Nova Scotia-ScotiaMocatta,Barclays Bank Plc, HSBC Bank USA and SocieteGenerale. The fixings are used to help determineprices globally.
Chairmanship of the Gold Fixing rotates annually among themember banks.
At the start of each fixing, the chairman announces anopening price to the other four members, who relay that to theircustomers and, based on orders received from them, then instructtheir representatives to declare themselves as buyers or sellersat that price.
The gold price is adjusted up and down until demand andsupply is matched, at which point the price is declared "Fixed".
The fixings are used to determine spot prices for thebillions of dollars of the two precious metals traded each day.
Buyers and sellers can get insight on price changes and thelevel of interest during the fixing process. They can cancel,increase or decrease their interest based on that information.
Gold and silver price setting has long been the subject ofdebate, and the CFTC looked at complaints about the silvermarket in 2008.
But most say that the process is transparent.
"The fix is one of the most open market pricing mechanismsin existence," Rhona O'Connell, head of metals research atThomson Reuters GFMS, said. "It is not a LIBOR clone."
