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* Deutsche Bank's seat at gold fixing table a 'tough sale'
* Prospect of increased scrutiny offsets kudos of role
* Candidate may emerge among Asian banks - sources
By Jan Harvey and Clara Denina
LONDON, Jan 22 (Reuters) - Deutsche Bank's decision to putits seat at the gold fixing table up for sale has raisedquestions about the future of the price benchmark.
One stands out: who, after the Libor scandal, will want it?
Gold price setting or "fixing", determining the benchmarkfor the billions of dollars traded every day, is nearly acentury old. The modern twice-daily system launched in 1968.
Unlike most commodities which are dominated by futurestrading, gold is chiefly a cash market.
Involvement in the fix offers little financial benefit tomembers, but a seat at the table is prestigious. However, thatmay not be enough.
"It's a tough sale at the moment," one source in the Londonprecious metals market said. "There's nothing really in it forthe banks, except the opportunity to say that they're a fixingmember, which carries a certain kudos."
Increased scrutiny, with regulators pushing for new rules oncommodity benchmarks after the Libor scandal, threatens tooutweigh that benefit, the source said.
Regulators including Germany's Bafin, Britain's FinancialConduct Authority and the U.S. Commodity Futures TradingCommission have increased scrutiny of commodity indices afterthe London Interbank Offered Rate, Libor, was rigged by Britishbanks.
The International Organization of Securities Commissions(IOSCO) issued guidance in July covering all benchmarks that arecentral cogs in the global economy, from interest rates toequities and gold.
A handful of banks getting together to decide the benchmarkgold price twice each business day is seen by detractors asanachronistic and opaque.
"It is a very old-style, archaic system and it is amazingthat such a way of doing business has survived the modern dayand age, where everything is so fast and electronic," Saxo Banksenior manager Ole Hansen said.
Gold market participants say concerns about opacity reflecta fundamental misunderstanding of how fixing works.
"The fix, unlike Libor, is a key pricing mechanism thatinvolves the whole of the interested parts of the market at anyone time, from jewellers up to central banks participating inpricing through the fix," Rhona O'Connell, head of research atThomson Reuters GFMS, said. "Any market participant can changehis order at any time, and the market is fully transparent."
"It's not as if it's a majority vote on the price, afterall, it's the whole of the interested market that's involved."
Apart from Deutsche, four other banks take part in thefixing - Barclays, HSBC, Societe Generale and ScotiaMocatta.
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, instructtheir representatives to declare themselves buyers or sellers atthat price.
The gold price is adjusted up and down until demand andsupply is matched, at which point the price is "fixed".
Sources said banks involved in the gold fix are reviewingthe mechanics of its process to try to ensure that the benchmarkcomplies with upcoming regulations.
"With all the scrutiny on benchmarks, starting with Libor,it makes sense to make sure that the way the fixing is conducteddoesn't leave itself open to accusations of manipulation," onesource said.
"They are asking the question, can we do more to make surethat this is as foolproof and watertight against allegations ofbeing influenced as it can be?"
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Increased regulatory scrutiny looks like the stumbling blockin finding a buyer for Deutsche's seat.
"There could be quite a few contenders but it also dependson what effect all the regulatory focus has," one gold marketsource said. "If regulators are going to say 'well the fixdoesn't work as it is, and we have to find another way of doingit', nobody is going to want to buy that seat."
It is Deutsche's responsibility to find a buyer for theseat, who would have to meet with the approval of the othermembers. The price would be negotiated between the buyer and theseller. The last time a seat was sold in 2004, it cost around 1million pounds ($1.6 million), sources said.
A logical possibility would be for another of the LondonBullion Market Association's market-making members, who quotetwo-way prices to each other during the London business day foragreed minimum quantities, to take a place at the table.
The market makers not currently involved in fixing - CreditSuisse, Goldman Sachs, JPMorgan,Merrill Lynch, Mitsui Precious Metals and UBS -declined to comment on whether they would be interested.
A candidate is more likely to emerge among the Asian banks, sources say, as these look to raise their profile in the Londonmarket at a time when Asia is taking a more important role inthe gold industry as physical metal moves eastward.
Chinese banks have increased their profile in the Londongold market. Bank of China and Industrial andCommercial Bank of China (ICBC) are already membersof the LBMA. ICBC is also about to complete the acquisition ofthe London commodity arm of Standard Bank, another member of theLondon Bullion Market Association.
Both banks declined to comment on whether they wereinterested in joining the fixing group.
If no buyer is found, it could potentially continue withjust four members, but that is unlikely to happen. WithoutDeutsche, only two banks, ScotiaMocatta and HSBC, will beinvolved in silver fixing.
Gold traders say the benchmark still has value, helping themto hedge risk, which would be more difficult if they werenegotiating sales privately with each client.
"There isn't really another way you can get a fair snapshotof the market twice a day," one gold trader said. "If the fixersstep away, it leaves it open to questionable prices being putthrough, with no reference to where the actual gold price is."
