LBMA Gold Price nearer to reality as new benchmark

It worked so well for silver — next up is gold.

The successful launch by CME Group and Thomson Reuters of the “LBMA Silver Price” mechanism on Aug. 15 to replace the 117-year-old London silver fix has put the partners in the driver’s seat with respect to creating a similar mechanism for setting daily spot gold prices.

With silver, CME Group (i.e., the  Chicago Mercantile Exchange & Chicago Board of Trade) now provides the electronic auction platform on which the spot price is calculated; Thomson Reuters is responsible for administration, governance and distribution; and the London Bullion Market Association (LBMA) accredits price participants.

The new global silver-price benchmark became necessary when the London Silver Fixing Market Ltd. stopped operations on Aug. 14, owing to the departure of Deutsche Bank as one of the fix’s three sponsors. The two remaining banks — HSBC and the Bank of Nova Scotia — wound down the silver-fix institution when a replacement sponsor could not be found.

The CME and Thomson Reuters silver-price partnership won out over several competing proposals, including ones by the London Metal Exchange (LME), Bloomberg, ETF Securities, Intercontinental Exchange, Platts and Autilla. 

The silver price is set by CME each workday at noon London time using an electronic auction system with no fixed number of participants, replacing the London silver fix’s bidding by a few participants in person or over the telephone.

(And the word “fix” is out as price-setting terminology in this new era, presumably because it brings to mind all the banking scandals in London of the past few years, most notably the rigging of the London Interbank Offered Rate benchmark.)

The new spot prices for silver are posted daily at www.lbma.org.uk for free, and widely distributed.

For now, the gold spot price fix still takes place twice daily by the London Gold Fixing Company at 10:30 a.m. and 3 p.m. London time, by four participants: Barclays, HSBC, Bank of Nova Scotia and Société Générale.

The four banks and the LBMA have announced their intent to set up a similar replacement for the gold fix, and have put out another call for proposals.

The new administrator would need to be in place by October, and the new spot gold-price benchmark ready to go live by year-end.

In the first week of September CME Group and Thomson Reuters expressed their interest in creating another benchmark for gold. They are already seen as the leading contenders, and could simply scale-up their work in creating the silver-price mechanism.

In a statement, CME and Thomson Reuters said they would consult widely with gold miners and consumers to provide an “authoritative” spot gold price.

Forbes calculates that metal and commodity trading constitutes 18% of CME value, and speculates that CME’s involvement in setting the silver and gold benchmarks could significantly improve metal-trading volume through CME’s platform, to the detriment of the LME, which reigns as the world’s largest venue for metal trading.