London Metal Exchange to Reenter Precious Metals

Credit: Kreepin Deth / CC-BY-SA 3.0

The London Metal Exchange, along with World Gold Council, is starting a new endeavour called LMEprecious. Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Societe General are co-owners in this joint venture.

They have announced their intentions to introduce a suite of exchange-traded and centrally cleared precious metals products. After a long gap of 30 years, London Metal Exchange (LME) is getting back into precious metals. This not only a great opportunity, but the precious metal industry is in dire need of such an efficient and professional marketplace. As the departure of principal banks in the wake of the Libor scandal had created a vacuum, and the Gold Fix could be manipulated. Also, the age-old process of rate fix conducted privately through banks has always been raising eyebrows. As recently as 18 months back, the price of gold was “set, or fixed”, twice a day by a group of banks by telephonic conference with clients. An electronic system now replaces this, but most of the spot gold trading in London is still done directly, privately.

This move of forming LMEprecious is intended to bring transparency in trading gold, silver and other precious metals. LMEprecious will be operative in the first half of the year 2017. It will introduce centrally-cleared gold and silver contracts and will later add platinum and palladium. The World Gold Council has been exploring the possibility of the introduction of exchange-trading since early 2015. At the same time, LME was also keen on reentering into trading precious metals since the closure of the London Gold Futures Market in 1985.

Aram Shishmanian, the Chief Executive of the World Gold Council, said: “This is another important step in the modernization of the gold market. We are proud to have been the catalyst for this process, defining the new trading capabilities and driving market engagement. We are confident that the new offering will be successfully implemented and supported by the market.”

This is also considered LME’s step to capture part of the $5 trillion over-the-counter gold and silver market in London. According to the official statement released, it will include contracts for the spot, daily and monthly futures, options, and calendar spread contracts.

Garry Jones, the Chief Executive of the LME, said: “LMEprecious opens up trading opportunities for existing LME members and their clients, as well as for new participants wishing to take advantage of optimized precious metals trading in a completely transparent way.”

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