New Gold Fix Planned By LBMA In Desperate Attempt To Maintain Status Quo

In the face of a global physical gold shortage, the London Bullion Market Association (LBMA) is quietly planning a new gold fix in a desperate attempt to maintain the status quo.

 

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Submitted by GoldCore

From Monday, September 22, the London Bullion Market Association (LBMA) will cease to publish and supply end-of-day forward curve data for gold and silver forward trades to the London Metal Exchange (LME) and LCH.Clearnet.

Therefore, today is the last business day that this long dated forward pricing data will be supplied by the LBMA.

Forward trades are over the counter trades where the two participants agree to buy/sell gold or silver now and sell/buy it back at a later date, usually with one leg of the trade being gold or silver and the other leg being US dollars.

Since the LME will no longer have this data, they cannot price forward trades and so cannot provide a clearing service for London gold forwards since they will not have pricing data to ‘mark to market’ any outstanding gold forwards for their clients.

This forward curve data had been supplied by the eight LBMA forward market makers since 2009, and then by seven market makers after Deutsche Bank dropped out earlier this year.

The CME Group also provides a clearing service for gold forwards and it is unclear how the cessation of the pricing data to the LME might affect the CME’s service. The CME Group was recently appointed by the LBMA to be the calculation agent and platform provider for the new LBMA Silver Price.

Shorter term gold forward data, in the form of Gold Forward Offered rates (GOFO) will continue to be supplied by the forward market makers and published by the LBMA. Therefore, the gold/silver forwards decision by the LBMA and its associated Market Makers will not affect (GOFO) data. GOFO data will still, for the time being, be published in London each business day at 11am.

LBMA Says 15 Companies Expressed Interest In Running New Gold Fix
Reuters reported today that there are at least 15 companies interested in running the upcoming replacement to the London ‘Gold Fixing’ auction. Like the recently introduced replacement to the ‘Silver Fixing’ which is now being run by the CME Group and Thomson Reuters, the LBMA has appointed itself as the coordinator for a new London Gold Price auction and is currently soliciting Requests for Proposals (RfPs) from interested parties.

When the new silver fixing auction was being debated in the summer, the World Gold Council (WGC) took the initiative and organised a conference of gold market participants including miners and refiners to work out the key features of a new gold price auction. This WGC initiative appears to have been shot down by the LBMA who felt threatened that a gold mining representative organisation was muscling in on the London gold ‘price discovery’ mechanism.

In advance of the LBMA choosing the winning bid, which may well be CME Group/Thomson Reuters again, the LBMA will be holding another seminar for ‘market participants’ that will feature presentations from the short-listed candidates.

As per a similar LBMA Silver Price seminar that was held in June, the upcoming LBMA gold price seminar will no doubt include various concerned regulators attending as ‘observers’ such as the Bank of England and the Financial Conduct Authority (FCA), as well as the International Swaps and Derivatives Association (ISDA).

ISDA will be concerned about how ‘price discovery’ in the new LBMA Gold Price auction will impact the huge outstanding pile of gold price related derivatives that ISDA coordinates. Since gold is a monetary metal and is strategic as the basis of all fiat currencies, the Bank of England will no doubt be sending senior representatives to the seminar to protect the Bank’s interests.

And since trade ‘clearing’ of the phenomenally large volume of loco London unallocated account gold fixing trades is so important for the six bullion bank members of London Precious Metals Clearing Limited, it will be a given that HSBC, JP Morgan, Deutsche Bank, Barclays,  ScotiaMocatta and UBS will attend the LBMA seminar in an attempt to preserve the City of London’s unallocated account clearing status quo.

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MARKET UPDATE
Today’s AM fix was USD 1,222.50, EUR 949.22 and GBP 745.38 per ounce.
Yesterday’s AM fix was USD 1,223.00, EUR 949.61 and GBP 749.99 per ounce.

Gold climbed $3.30 or 0.27% to $1,224.90 per ounce and silver rose $0.02 or 0.11% to $18.51 per ounce yesterday.

Overnight, spot gold in Singapore recovered from falls seen on the illiquid NY Globex market and rose from $1,220/oz to $1,227/oz prior to some selling during London trading.

Gold is set for a 0.3% drop for the week. The metal fell to $1,216.01 in the prior session, its lowest since January – before recovering slightly.

Silver, platinum and palladium were all headed for a weekly decline in prices. Platinum is currently trading at $1,347, and is 0.27% lower from yesterday and down 1.24% on the week. The palladium price was marginally lower in London trading today at $827, down 0.36% from yesterday and is 0.24% lower on the week.

Physical demand in Asia has ramped up with the lower prices, giving some support. Premiums in top buyer China held steady at $5-$6 an ounce, compared with about $4 earlier in the week.

Yesterday, China launched a gold exchange open to foreign players for the first time, as the world’s largest gold bullion buyer races to set the benchmark price in Asia.

Short term weakness is likely as the current trend and momentum is down. The medium and long term outlook remains positive, especially given geopolitical risks and robust physical demand from the Middle East, India and China.