May be bullish, LBMA conference hears. But it's more gold price gloom
first...
LBMA delegates at the 2015 gold conference in Vienna this
morning gave their price forecasts for 1 year hence, writes Adrian Ash of
BullionVault.
We don't yet know the average guess of the 690 attendees from 290
different companies across the precious metals world, meeting here at the
London Bullion Market Association's annual bash. The conference's aggregate
gold price forecast won't be revealed until Tuesday's closing session.
But the tone from the first of LBMA 2015's forty-nine expert speakers is,
so far, bearish. Wearily so. Fatigue is really hurting, especially straight
after the gloom of London's LME Week for base metals.
That might prove bullish for precious metals of course – because all
markets, not just gold, silver and the platinum-group metals, only turn when
the fewest people expect it, something the chit-chat at Sunday night's
conference reception drinks kept coming back to.
But on the podium, there's more pain to come first is the consensus today.
And not only through lower prices.
First up, regulatory change threatens liquidity in the gold and other
metals markets, noted LBMA chairman Grant Angwin (executive vice-president of
Japanese refiners Asahi's US operations) – such as the Basel banking rules
proposal for a 85% haircut on precious metals when counted as part of a
bank's assets. That risks forcing banks out of gold.
So the LBMA itself is leading the market's response, moving from last
year's whirlwind replacement of the century-old Fixing benchmarks with new,
independently-run electronic auctions to invite a wholesale strategic review
of how the professional bullion market works.
When I say wholesale, the scope for change is apparently unlimited. The
process now begun by the Association's executive team, said Jonathan Spall
(ex-Barclays, now advising the LBMA with his G-Cubed consultancy), has
seen a Request for Information sent to potential partners which
equates to asking "What would the ideal market look like if you built it
from scratch?"
Well, it might look a lot like what the world has already developed – over
time and through practice – after centuries of trading and capital flow,
rather than a roadmap pitched within 5 weeks of an RFI. Not least to the
assembled delegates from miners, refiners, shippers, vaults, dealers,
traders, investors and end-users attending the LBMA conference here in
Vienna.
But regulatory scrutiny – plus the risk of further big players joining market-makers Mitsui in quitting the market for want of
"profitability" after the last 4 years of price falls – makes now
the perfect moment for reveiwing and re-building the whole market, so it can
continue to serve producers and consumers more efficiently, and with the
confidence lost over the Barclays Fixing scandal.
Indeed, two of the proposals being sent back to the LBMA next month
(November 17th) in response to its RFI will explicitly look at using a block
chain to record deals, breaking out of 'owned' or corporately-served
databases in the way that Bitcoin acts as electronic cash free from
state-issuance or bank processing.
Change will perhaps be greatest for the LBMA itself, with CEO Ruth Crowell
telling the conference today that its strategic review foresees a new trade
association for the four metals (gold, silver, platinum and palladium) plus a
new financial services provider for market participants.
World Bullion Market Association anyone?
Change has already hit other areas of the gold market – notably
central-bank use of bullion as a key reserve, noted Peter Mooslechner of Oesterreichische
Nationalbank (OeNB), welcoming the LBMA conference to Vienna at the top
of the day. Because where small, open economies like Austria needed large
gold reserves during the Bretton Woods and then floating exchange-rate worlds
of 1950-2000, adopting the Euro "fundamentally changed the role of
gold" for Euro member central banks, he said.
More on that later from the Central Bank session. Meantime, the speakers
so far don't see much change in the downtrend in prices. Offering 3 ways to
put a fair value on gold (famously tough as it pays no coupon or dividend),
ex-HSBC Wealth manager Charles Morris (now focused on gold, miners and
Bitcoin in the Atlas
Pulse Report) said:
• Gold vs. commodities: Now 62% over-valued across the
long term average
• Gold vs bonds (only this one's issued by God): Now 30%
above its average
• Gold vs cost of living (CPI index): Now 34% above
average.
All told, that says gold should be bearer $800 per ounce, Morris concludes
– right around the 2008 lows when Lehman Brothers crashed and the world woke
up to needing gold as what other panellists agreed is "catastrophe
insurance". That bull market in gold, however, brought what several also
called "tourists" into the market, many of whom remain.
Gold ETFs for instance – an innovation enabling US fund managers in
particular to access cash-gold prices rather than buying mining stocks a
decade ago – still hold 1,600 tonnes. The market needs to find 10 tonnes of
new buying each day already just to eat what's now coming out of the ground
from mining. What would it take to encourage those investors to buy more
again? This morning's session brought lots of gloomy views on the world
economy, and the disaster in waiting still building thanks to central-bank
stimulus.
But the view for gold, silver and especially platinum prices here at LBMA 2015 so far is
gloomier still. Which might be bullish. In time.
