Yesterday, the London Metal Exchange (LME) and the World Gold Council (WGC) announced their intention to introduce a suite of exchange-traded and centrally-cleared precious metals products. What does it imply for the precious metals market?
The London Metal Exchange is the world centre for industrial metals trading. Now, it has decided to expand its list of products and introduce spot and futures contracts for gold and silver in the first half of 2017. The new initiative, called LMEprecious, is undertaken in collaboration with the WGC, a gold industry lobby group, and with Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Societe Generale. Actually, it is not a new initiative, as the LME operated the London Gold Futures Market in the 1980s for a while, but the lack of investors’ interest forced it to withdraw from gold trading.
The gold and silver products will include contracts for spot, daily and monthly futures. They will be traded electronically via LMEselect and cleared by LME Clear, the LME’s cutting-edge, real-time clearing house. Gold will trade on the basis of London good-delivery 99.5 percent bars in 100 ounce lots, while silver will trade in 5,000 ounce lots for bars of 99.9 percent purity. These contracts are designed to complement the over-the-counter London Bullion Market and increase market transparency.
To sum up, the LME and WGC together with a group of leading banks announced a launch of a new precious metals trading venture in the first half of 2017. The initiative should increase London’s role as a major gold global trading centre. Investors should not expect a significant impact on the price of gold, but the news is certainly positive for the gold market, as the introduction of London futures contracts is likely to improve transparency and increase competition in the precious metals market. However, we have to wait to evaluate the performance of the new venture which would have to compete with Comex and LBMA – it seems that London’s two largest bullion banks, HSBC and JPMorgan, were skeptical about the success of LMEprecious, as they did not sign up for the project.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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