Editorial: For silver, the fix is out

Gold’s poor cousin silver got its reputation a little more tarnished in mid-May, with London Silver Market Fixing Ltd. announcing that it would stop administering the London silver fix as of Aug. 15, 2014. On this date, the company will stop coming up with a daily silver fix in London, and it will no longer be published.

Until then it will be business as usual, with Deutsche Bank, HSBC and the Bank of Nova Scotia remaining members of the company, which administers the London silver fix, publishes daily silver fixes and liaises with stakeholders.

London Silver Market Fixing Ltd. said in a press release that the next three months “will provide an opportunity for market-led adjustment, with consultation between clients and market participants.”

The better-known London Bullion Market Association — the trade association for the London bullion market — says it is helping with discussions among market participants, regulators and potential administrators to see whether anyone wants to develop an alternative to the London silver fix, and “ensure the best way forward for a London silver daily price mechanism.”

One part of the LBMA’s consultation is an online survey of market participants, available at: https://www.surveymonkey.com/s/AGConsult.

As for what happens after Aug. 14 for market participants with contracts referencing the silver fix, London Silver Market Fixing Ltd. says it is “not in a position to comment on such matters, but market participants can speak to their contractual counterparties.”

It also emphasized that its decision only relates to the silver fix, and it’s not in a position to comment on the other three precious metal fixes in London: gold, platinum and palladium.

While the London Silver Market’s history reaches back more than three hundred years — with most of the transactions in the first two centuries taking place in coffee houses — the daily London silver fix officially started in 1897, with four members: Mocatta and Goldsmid; Sharps and Wilkins; Pixley and Abell; and Samuel Montagu & Co.

Originally two prices were fixed daily: cash and two months forward. Starting in 1967, that grew to spot, three-, six- and 12-month forward prices, and U.S. dollar-equivalent prices were added.

By 1999, it had become a telephone conference-call process taking place at noon on workdays, with prices in sterling, U.S. dollars and euros. The fixing members by then were Bank of Nova Scotia (Mocatta), HSBC (Montagu) and Deutsche Bank (Sharps Pixley).

Fast-forward to May 2014, and Deutsche Bank said it would withdraw from the London silver fixing process, leaving only the Bank of Nova Scotia and HSBC. It may take two to tango, but apparently you need three to fix a precious metal price, and so the remaining two members decided to wind down operations after no replacement for Deutsche Bank could be found.

Last year Deutsche Bank announced it would exit its commodities businesses, and a couple of weeks ago resigned its membership in the sister company that sets the daily London gold fixes, leaving only Barclays, HSBC, Bank of Nova Scotia and Societe Generale to carry on in gold.

(While Deutsche Bank’s break with gold was immediate, British regulators had asked Deutsche Bank to delay its resignation from the silver fix by several months to ensure an orderly process.)

Until recently, London Silver Market Fixing Ltd. described its daily silver fix as the “most acceptable pricing mechanism for producers, consumers, arbitrageurs and speculators.”

Precious metals trade around the clock, so there is always a price available, but it’s not clear what the next benchmark price for silver will be, or whether the London fixes for gold, platinum and palladium will also wind down if membership dwindles in the fixing companies.