London Gold Market Under Scrutiny as Bullion World Gathers

  • LBMA, World Gold Council have suggested changing OTC market
  • Industry meets in Vienna for annual precious metals conference

The gold industry won’t just be guessing where prices are heading at its annual gathering in Vienna this week. It will ponder how to change London’s spot market, the biggest in the world.

The London Bullion Market Association, which oversees trading and is holding its annual conference starting Monday, has invited proposals on how to improve the city’s over-the-counter market and suggested more detailed reporting of transactions. At the same time, the producer-funded World Gold Council has also agreed with five banks to talk about potentially starting standardized central clearing and listed derivatives.

London’s market, where custom deals are made on delivery times and size, has come under focus as regulators around the world scrutinized commodities trading and lawmakers have pressed for tighter bank controls. The city has for centuries relied on those trading to manage the risk of default or non-payment. In most other places, transactions are backed by exchanges that offer set contracts.

“Change in regulation is a very big issue,” said Adrien Biondi, the global head of precious metals at Commerzbank AG in Luxembourg. “It’s focused the market on what needs to be done.”

Change Coming?

The LBMA said Oct. 9 that it wants to study ways of boosting transparency and invited the market to suggest improvements, including considering a new electronic platform that may lower trading costs and improve efficiency. The association’s get-together, where more than 600 people from banks, mining companies, retailers and exchanges meet, will provide a chance for more unofficial talks.

Moving trading to an exchange would be a bigger overhaul, something that the LBMA said in April is unlikely because it may increase costs. The World Gold Council said in a letter last month to the LBMA and the city’s platinum and palladium association that it and a group of five banks, including Goldman Sachs Group Inc. and Morgan Stanley, are talking about making changes.

The group last week asked exchanges, including the London Metal Exchange and the London Stock Exchange, for proposals on how to start standardized central clearing and listed derivatives, people familiar with the matter said.

The council continues to talk with banks and the wider industry to explore ways to modernize the market, it said Friday, without elaborating.


The LME, the world’s biggest industrial metals bourse, said in September that it’s ready to work with the industry on a clearinghouse for bullion. LME Chief Executive Officer Garry Jones said earlier that month that the exchange is considering expanding into gold and silver contracts.

Attendees at the LBMA conference usually discuss everything from price forecasts to contracts. They’re meeting two months after gold prices, little changed this year, touched a five-year low. Half of respondents in a Bloomberg survey this month expected bullion to drop for a third straight year in 2015, while the rest predicted a gain.

Association Changes

The association is considering expanding its oversight to include platinum and palladium, rather than just gold and silver, Chief Executive Ruth Crowell said Monday at the conference, citing regulatory, political and competitive changes. Having all four metals under one group would make sense from a banking and vaulting perspective and LBMA members will be asked to vote on the change at the annual general meeting in June, she said.

London’s bullion market dates back more than three centuries. About $21 billion of gold has been cleared on average each day through the city this year, according to the LBMA, which counts Barclays Plc and JPMorgan Chase & Co. among its market-making members.

The city has already taken steps to modernize the market. In March, an IntercontinentalExchange Inc. unit began running an electronic auction for daily gold prices, replacing a phone-based system between a few banks that had changed little since starting almost a century earlier. Similar overhauls to silver, platinum and palladium fixings were made last year. The LBMA helped oversee those changes.

“From the perspective of a market user, this is step in the right direction,” said Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a Geneva-based refiner. “I think it would be to the benefit of everyone if we can see the powers of the LBMA and WGC combine.”

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