Tuesday, July 25, 2017

China's LME will soon be publishing their own gold and silver fix prices in parallel to London

On July 25, officials from the Hong Kong owned London Metals Exchange (LME) announced they would soon be publishing their own daily gold and silver prices in parallel to the long-standing London Gold Fix.

The LME had until recently applied to the LBMA to take over the daily metals benchmark pricing following the CME and Thompson-Reuters early exit from their price fixing scheme, but the LBMA instead chose the Intercontinental Exchange (ICE) earlier this month to take over the London Gold and Silver Fix.

The London Metal Exchange (LME) will start publishing gold and silver reference prices, the exchange told Reuters on Tuesday, potentially challenging the dominance of benchmarks administered by Intercontinental Exchange (ICE). 
Precious metals producers and consumers around the world use benchmarks owned by the London Bullion Market Association to price contracts. 
Intercontinental Exchange (ICE) sets the LBMA Gold Price twice a day via an electronic auction, and was selected this month to administer the LBMA Silver Price, defeating a rival bid by the LME. 
The LME will publish alternative prices based on trading of its gold and silver futures, launched earlier this month. "Following a number of requests from key precious metals market participants, the LME intends to publish intraday reference prices for its gold and silver contracts," the LME told Reuters. - Straits Times
In the end, how this will affect the paper and futures price has yet to be seen, however the LME recently was given a license to conduct its own futures contract in gold and silver, and this means that the potential for a parallel price mechanism that is divergent from the one conducted by the LBMA each day is highly probable.  And as we have seen over at the Shanghai Gold Exchange, where the price in the world's largest physical market is often higher than the paper price determined daily in London and New York, the chances of the LME siphoning off businesses from the Comex into their own contracts could facilitate an arbitrage, and an eventual usurpation of the LBMA's control over the prices of gold and silver.


Could this actually become an arbitrage scenario as Shanghai must back its trade with physical gold but I believe that London could close a default situation monetarily, so if Shanghai prices rose inexorably and London was bought at a lower threshold and sold against the Shanghai highs since the markets don't operate along the same lines, the London short giving up the volume opposite the long (who has then sold on Shanghai) might default. Hence the Shanghai market will be stymied to a degree in view of this potential eventuality. Would this not be the case ?

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