* German regulator has been investigating gold-fixingprocess
* Deutsche move comes after scaling back commodity business
* Others may follow Deutsche's lead - source
* Deutsche, rivals embroiled in probes of FX, interest rates
By Eric Onstad
LONDON, Jan 17 (Reuters) - Deutsche Bank willwithdraw from gold and silver benchmark price setting, it saidon Friday, as European regulators investigate suspectedmanipulation of precious metals prices by banks.
Germany's largest bank and some of its rivals are taking abattering over a series of other scandals and inquiriesregarding manipulation of interest rates and foreign exchange.
On Wednesday, global investigations into alleged currencymarket manipulation intensified as U.S. regulators descended onCitigroup's London offices and Deutsche suspended severaltraders in New York, sources told Reuters.
Deutsche is one of five banks involved in the twice-dailygold fix for global price setting and said it was quitting theprocess after withdrawing from the bulk of its commoditiesbusiness.
"Deutsche Bank is withdrawing its participation in the goldand silver benchmark setting process following the significantscaling back of our commodities business. We remain fullycommitted to our precious metals business," it said in astatement.
In mid-December, German banking regulator Bafin demandeddocuments from Deutsche Bank under an inquiry into suspectedmanipulation of benchmark gold and silver prices by banks, theFinancial Times reported, citing sources.
At the time, Deutsche declined to comment on the FT report.
Bafin reiterated in December that besides benchmarkinterest-rate LIBOR and Euribor rigging by banks, it had beenlooking at other benchmark-setting processes such as gold andsilver price fixings at individual banks.
Bafin declined to comment on Friday, but its President ElkeKoenig said the previous day that it was understandable that thetopic was attracting widespread concern.
"These allegations (about currencies and precious metals)are particularly serious, because such reference values arebased - unlike LIBOR and Euribor - typically on realtransactions in liquid markets and not on estimates of thebanks," she said in a speech
A source close to Britain's Financial Conduct Authority(FCA) said on Friday the regulator was doing a lot of work onall benchmarks, including commodity benchmarks and gold. "Sothere is a renewed regulatory focus on that," the source said.
Deutsche has also been named in cases related to thesub-prime crisis, credit default swaps, mortgages, tax evasionand a decade-old lawsuit suit brought by the heirs of late mediamogul Leo Kirch, who accuse the bank of undermining thebusiness.
The bank set aside 1.2 billion euros for potential legalcharges in the third quarter, wiping out profit and raising thetotal amount of legal reserves to 4.1 billion euros.
GOLD FIXING CRISIS?
A source close to Deutsche said on Friday it was seeking tosell its gold and silver fixing seats to another member of theLondon Bullion Market Association.
But Deutsche's decision may foreshadow moves by other fixingbanks, a source in the London precious metals market said. "Itwouldn't surprise me if the other banks were looking at pullingout as well. Why would they want the aggravation?" said thesource, who declined to be named.
"The more worrying point is that, if you don't have thefixing, what do you have? There's a lot of contractual businessdone on the gold fix, and if you've got no basis for where theprice is, someone is going to lose out."
Withdrawal from the fixing was not expected to have animpact on Deutsche's precious metals business, the source closeto the bank said. "A very small volume of business is executedon the fix. The majority is outside of it."
Gold fixing happens by teleconference with four other banks:Bank of Nova Scotia-ScotiaMocatta, Barclays Bank Plc, HSBC Bank USA, NA and Société Générale, allof which declined immediate comment on the Deutsche move.
Chairmanship of the gold fixing rotates annually among themember banks. The last time a fixing seat changed hands was in2004, when N.M. Rothschild and Sons sold their seat to Barclays.Two years earlier, Credit Suisse sold its seat toSociété Générale.
At the start of each gold price-fixing, the chairmanannounces an opening price to the other four members who relaythat to their customers, and based on orders received from them,instruct their representatives to declare themselves as buyersor sellers at 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.
Barclays (BARC)