London Gold Market Comes Clean: Its Not as Big as Thought

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London has quantified the size of its gold market for the first time in its history, paving the way for further transparency in other precious metals that trade away from exchanges.

Turner provided data to show a comparison of the size of the LBMA market to other outside markets. The $36.9 billion-per-day gold market over the last week was “in the same ballpark” as 2017 average daily trading volume of $44 billion in U.K. government bonds, known as gilts. The $36.9 billion gold market exceeded the $22 billion daily average for London Metal Exchange copper in 2017, although it was short of the $50 billion daily average for the so-called “big five” LME base metals (copper, aluminum, nickel and tin).

The London Bullion Market Association said market-makers and some full members traded $36.9bn of gold and $5.2bn of silver every day on average last week.

Still, CME Group’s U.S.-based Comex futures and options market was 13% bigger at around 34 million gold ounces a day, Turner pointed out. However, he cautioned that the figures will vary and it will take some time to make clear where the most volume occurs. A certain amount of volatility occurs in both markets. Still, Turner pointed out that both markets are far larger than the next biggest one — China’s Shanghai Futures Exchange, which averaged around 2.6 million ounces per day over the same time.

The LBMAs data showed that an average daily 30.2 ounces of gold was traded that week. But, according to Macquarie precious metals strategist Matthew Turner, Londons OTC gold contracts continues to lag CME Groups Comex in New York, which last week clocked a daily average of 34 ounces per day.

London is one of the world’s major gold-trading centers, but transactions tend to be over the counter (OTC) between banks, brokers and traders. There has been a call for greater transparency in recent years, particularly amid charges of market manipulation. So beginning this week, the LBMA is releasing data on the size of the gold market for the previous week on Tuesdays. The LBMA said it will move to daily reports in three months.

Turner said: For the first time in the long history of the London gold market, its size is not guesswork but a reliable measurement, a notable achievement given the variety of participants and products that it encompasses.

The report showed that for the week, members traded 95 million ounces of gold in spot contracts, 46.5 million ounces in swaps and forward contracts, 4.1 million ounces in options and 5.4 million ounces in leases, loans and deposits. Trading in silver totaled 1.1 billion ounces in spot contracts, 651.2 million ounces in swaps and forwards, 36.7 million ounces in options and 43.7 million ounces in leases, loans and deposits.

While the LBMA was founded in 1987, the history of Londons gold market goes back several centuries. It is characterised by over-the-counter deals that take place directly between traders. The LBMAs largest members include the bullion banks HSBC and JPMorgan, both of which own vaults in London for storing gold.

(Kitco News) –  Average daily gold turnover was $36.9 billion and 30.2 million ounces in the London over-the-counter market during the last week, the London Bullion Market Association reported Tuesday upon releasing a new report aimed at increasing transparency in the market.

LBMA chief executive Ruth Crowell said: This is an exciting moment for transparency in the global OTC market.

Crowell said the LBMA has plans to publish data for platinum and palladium as well. The association plans to report the data on a daily basis in three months time.

“But this is just the beginning. After all, a snapshot can only tell us so much. The real benefit of data sees how it moves over time, especially once we have daily publication in 1Q 2019 and data on the platinum and palladium markets.”

The data initiative marks the latest major change in Londons gold market. In March this year, HSBC, JPMorgan, Scotiabank, UBS and ICBC Standard restructured London Precious Metals Clearing to make it easier for new members to join the clearing house. The LBMA also published holdings in vaults for the first time in 2017.

The significance of the new data “should not be understated,” said Matthew Turner, associate director for commodities and economics strategy with Macquarie Capital Europe Ltd. His written analysis accompanied the LBMA report.

Another development on the road to greater transparency came in 2015, when a unit of Intercontinental Exchange took over the auctions for setting the price of gold. Previously, the daily fixes were determined over a conference call. Producers, banks and jewellers take part in the auctions and use the benchmarks as reference prices.

ICE Benchmark administration took over the gold and silver fixes after regulators ramped up their scrutiny of financial market benchmarks, in the wake of the manipulation of the London interbank offered rate, or Libor, for which banks were fined billions of dollars.

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