The second half of 2016 saw announcements by three exchange providers for
plans to compete in the London Gold Market through offerings of
exchange-traded London gold futures contracts.
First off the mark was the London Metal Exchange (LME) in conjunction with
the World Gold Council with a planned platform called LMEprecious. There were
rumblings of this initiative in the London financial media from
as early as January 2015, but concrete details for the actual
platform were only announced on 9 August 2016. See LME press release “World
Gold Council, LME and key market participants to launch LMEprecious.” The
LME plans to call its gold futures contract LME Gold. There
will also be an “LME Silver”. Each is a suite of contracts of varying
lengths including a daily futures (spot settlement) contract. See also
BullionStar blog “The
Charade Continues – London Gold and Silver Markets set for even more paper
trading” from August 2016 which took a first look at the LMEprecious
suite.
Two months after the LME announcement, during the annual conference of the
London Bullion Market Association (LBMA), Intercontinental Exchange (ICE)
announced on 17 October that it too planned the launch of a gold futures
contract in the London market. See Bullion Desk’s “ICE
to launch gold futures in 2017, competition in gold market grows” as well
as the ICE press
release. The ICE contract is named “Gold Daily Futures” and resides on
the ICE Futures US platform. It too is a daily futures contract.
Not to be outdone, the CME Group then followed suit on 1 November 2016 and
it too announced plans for a “London Spot Gold Futures contract” as well as a
“London Spot Silver futures contract”. See CME press release “CME
Group Announces New Precious Metals Spot Spread” from 1 November 2016,
and “CME
to launch London spot gold, silver futures for spot spread” from the
Bullion Desk, 1 November 2016. The CME contract was to trade on COMEX (Globex
and Clearport) as a daily futures contract, and was devised so as to
offer traders a spot spread between COMEX and London OTC Spot gold.
As of August 2016, the LME’s target launch date was said to be “the
first half of 2017”. ICE was more specific with a target launch of
February 2017 (subject to regulatory review). In it’s announcement, CME went for
an even earlier planned launch date of 9 January 2009 (subject to regulatory
approval).
Two Launches – No Volume
Why the update? Over the 2 weeks, there have been a number of developments
surrounding these 3 contracts. The CME and ICE gold futures contracts have
both been launched, and additionally, LME has provided more clarity around
the launch date of its offering.
Surprisingly, while there was plenty of financial media coverage of these
3 gold futures contracts when their plans were initially publicised from
August – November 2016, there has been little to no financial media coverage
of the contracts now that 2 of the 3 have been launched.
On 25 January, I took a look at the CME website to see what the status of
the CME gold futures contract might be. Strangely, the
contract itself was defined on the CME website (with a code of GSP) but
it had no trading volume. From the website, it was not clear when the
contract actually launched, but it looked to be sometime during the last week
of January.
On 25 January, I also sent a short email to CME asking:
“Has the London Spot Gold contract started trading yet?
http://www.cmegroup.com/trading/metals/precio...-spot-gold.html
It doesn’t look like it has, even though the contract is defined on
your website. Could CME confirm when it will start trading?”
Next day on 26 January, I received this response from the CME:
“Thank you for reaching out to the CME Group with your query.
The London Spot Gold and Silver products are available to trade but
at this time no trades have been made in the listed contract
months.”
Fast forward to end-of-day 7 February. From the CME website, I still
cannot see that there have been any trades in this gold futures since it was
launched. The target="_blank" volumes
are all zero. The same applies to the target="_blank" London
Spot Silver futures contract (code SSP).
Next up the ICE gold futures contract (AUD). Upon checking the ICE website
under section “Products”, the new target="_blank" ICE Gold
Daily Futures contract has been defined, and the description states “The
Daily Gold Futures contract will begin trading on trade date Monday, January 30,
2017“.
Turning to the ICE reporting section of the website for futures products,
and selecting the target="_blank" end
of day ICE Futures US report page, and then selecting the reports for
AUD, there are 6 daily reports available for download, namely, from 30 and 31
January, and 1, 2, 3 and 6 February. Again, looking at each of these reports,
there are varying prices specified in the reports but there are no trading
volumes. All of the volumes are zero.
Therefore, as far as the CME and ICE websites show, both of these new gold
futures contracts have been launched and are available to trade, but there
hasn’t been a single trade in either of the contracts. Not a very good start
to what was trumpeted and cheer-led as a new dawn for the London Gold Market
by outlets such as Bloomberg with the article target="_blank"“Finance
Titans Face Off Over $5 Trillion London Gold Market“.
LMEprecious – To Launch Monday 5 June 2017
Finally, possibly so as not to be forgotten while its rivals were
launching their London gold futures offerings, the LME on Friday 3 February
announced in a general LME and LME Clear update memo that the planned launch
date of its LMEprecious platform is now going to be Monday 5 June, i.e. 5
months from now.
As a reminder, the LMEprecious contracts will be supported by a group of
market maker investment banks, namely Goldman Sachs,Morgan Stanley,
Société Générale, Natixis and ICBC Standard Bank.
It’s also important to remember that all 3 of these gold futures contract
product sets are for the trading of unallocated gold, (i.e. claims on a
bullion bank for gold, aka synthetic / fictional gold). All 3 contracts claim
to be physically-settled but this is essentially a play on words, because in
the world of the London Gold Market, physically-settled does not mean
physically-settled in the way any normal person would define it. LBMA
physically-settled just means passing unallocated balances around, a.k.a. pass
the parcel. To wit:
ICE London gold futures settle via unallocated accounts:
“The contract will be settled through unallocated loco London gold
vault accounts using LBMA Good Delivery Rules.”
CME London gold futures settle via unallocated accounts:
“London Spot Gold futures contract will represent 100 troy ounces of
unallocated gold“
And for LMEprecious, settlement will be:
“Physical settlement one day following termination of trading. Seller
transfers unallocated gold to [LME Clearing] LMEC account at any LPMCL member
bank, and buyers receive unallocated gold from LMEC account at any LPMCL
member bank.”
Conclusion
With neither the CME nor the ICE gold futures contracts registering any trades
as of yet (according to their websites), it will be interesting to see how
this drama pans out. Will they be dud contracts, like so many gold futures
contracts before them that have gone to the gold futures contracts graveyard,
or will they see a pick up in activity? All eyes will also be on the LME
contract from 5 June onwards.
The lack of coverage of the new CME and ICE London gold futures contracts
is also quite unusual. Have the London financial media already forgotten
about them? According to Reuters it would seem so. On 22 January,
Reuters published an article titled target="_blank"“LME’s
pitch for share of gold market faces bumpy ride” which exclusively
questioned whether the LME gold contract would be a success, while not
even mentioning the CME and ICE contracts. Given that 22 January was
right before the CME and ICE contracts were about to be launched,
this is quite bizarre. Presumably Bloomberg will come to the rescue of
its ‘financial titans’ heros, and will write glowing tributes about the new
contracts, but this will be tricky given the zero trade volumes. We await
with bated breath.
Ronan Manly
E-mail Ronan Manly on:
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