* Market benchmarks being reviewed in wake of Libor affair
* Five banks take part in twice-daily pricing process for gold
* CFTC looked into complaints on the silver market in 2008
By Veronica Brown
LONDON, March 14 (Reuters) - London's gold and silver markets face the possibility of a probe into price setting, putting a century-old practice under the spotlight after the Libor rigging scandal that exposed widespread interest rate manipulation by banks.
The U.S. Commodity Futures Trading Commission (CFTC) has started internal discussions on whether the daily setting of gold and silver prices is open to manipulation, the Wall Street Journal reported on Wednesday.
The CFTC declined to comment, while the chairs of the London Gold Fixing Company and London Silver Fixing Company were not available for comment.
CFTC Commissioner Bart Chilton, attending the annual Futures Industry Association conference in Boca Raton, Florida, declined to specifically address the report, saying: "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks - many other benchmarks - are legit areas of inquiry."
Britain's Financial Services Authority (FSA) also declined to comment on whether it was looking into gold and silver price setting, but said on Thursday it is feeding into a wider review of price benchmarks run by the International Organisation of Securities Commissions (IOSCO) - a global umbrella group for markets regulators.
IOSCO is set to publish a report in May with principles on how to compile important benchmarks to avoid rigging.
The setting, or "fix", 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. Silver price setting started in 1897.
Currently, gold fixing happens twice a day by teleconference with five banks: Bank of Nova Scotia-ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA, NA and Société Générale. The fixings are used to determine prices globally.
Chairmanship of the Gold Fixing rotates annually among the member banks.
At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay that to their customers, and based on orders received from them, instruct their representatives to declare themselves as buyers or sellers at that price.
The gold price is adjusted up and down until demand and supply is matched at which point the price is declared "Fixed".
The fixings are used to determine spot prices for the billions of dollars of the two precious metals traded each day.
Buyers and sellers can get insight on price changes and the level 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 of debate, and the CFTC looked at complaints about the silver market in 2008.
But most believe that the process is transparent.
"The fix is open, consequential, transparent and has stood the test of time. It's not open to manipulation in the same way as Libor," said Ross Norman, chief executive of bullion broker Sharps Pixley.