Barclays and JP Morgan front runners for gold seat

Click to follow

Barclays Capital and JP Morgan are the two front runners in the battle to replace NM Rothschild as one of a handful of financial institutions that fix the gold price every day.

Sources said Barclays Capital had the edge over JP Morgan, as the investment banking arm of the Barclays group was particularly keen to expand its commodities trading arm.

Rothschild took the City by surprise two weeks ago when it announced it was pulling out of the gold market, breaking 200 years of tradition of having a "seat" on the board of five banks that fix the price.

The independent investment bank - which also held the chairmanship of the gold fixing board - is expected to conclude an auction for its seat within two months. The price a buyer would have to pay is likely to be in the region of £2m. The money would be for the prestige of being on the fixing board. It would also enable the buyer to tell clients they were close to what was happening on a daily basis in the gold market.

Whoever buys Rothschild's seat must be a market-making member of the London Bullion Market Association.

As well as Barclays Capital and JP Morgan, UBS and J Aron, which is owned by Goldman Sachs, qualify. However, UBS and Goldman are not interested in buying the seat.

AIG International of the US is another qualifying member of the LBMA, and could also bid.

A spokesperson for Barclays Capital said it was "evaluating" the situation and was "likely to bid". A spokesperson for JP Morgan said: "Being a gold fixing member is of potential interest to us."

Until Rothschild stepped down, it had been chairman of the price-fixing board since 1919 and had required the four other current members - including HSBC and Deutsche Bank - to come to its offices in St Swithin's Lane each day.

The gold fixing board last week said Rothschild's resignation as chairman had triggered plans to make various changes, including abandoning the twice-daily meetings to fix the gold price. Instead, the process will become more like the way silver is priced every day, by traders over the telephone. The chairmanship will also be rotated between the members.