Although Asia is becoming more important in influencing gold price discovery, London remains the key pool of liquidity, ICBC managing director Raj Kumar said at the London seminar on Monday October 31.
“Gold still has an anchor in London and London is still an important location for gold,” he added.
But the exit of several major participants from the market highlights the need for it to be reinvigorated, Robin Martin, md of the Wold Gold Council (WGC), said.
The WGC, in collaboration with the LME and with support from five bank and one proprietary trading house, will roll out London spot, futures and options contracts for gold and silver
in the first half of 2017. Platinum and palladium contracts will follow at a later date.
London’s gold market needs to move towards increased transparency and it needs to be made available to a larger number of participants, Martin said.
The London gold market is primarily over-the-counter (OTC), with trades taking place privately between counterparties rather than on an exchange. But liquidity has dropped over the past year; many banks have pulled out of commodities – including precious metals – due to the advent of tighter regulation following the 2008 financial and banking crisis.
Still, OTC trading has its benefits, Francois Combes of Société Générale Newedge, said, and it will remain active and continue to add value to the gold market.
The LME/WGC initiative has a strong possibility of success given the economic and political uncertainty – it offers the attractive advantage of risk mitigation, OSTC executive chairman Jonny Aucamp said
OSTC is the trading house involved in the initiative LME-WGC contracts.
Still, the changing landscape of the London gold market could lead to fragmentation and problems with liquidity, panellists said.
The LME faces growing competition when it launches its new set of precious contracts – the Intercontinental Exchange is rolling out a rival gold contract next year and the London Bullion Market Assn is separately attempting to set up its own trading platform to improve transparency in the $5 trillion-per-year London gold market.
This article was first published on www.fastmarkets.com