Is the new LBMA Gold Price just another Fix? $1171.75 the first new benchmark price

The first LBMA Gold Price benchmark price has come in at $1171.75, but the make-up of the price setting participants continues to raise questions.

The new LBMA Gold Pricing benchmarking process came into effect today and the 10.30 am price set under the new system was $1171.75 – but the make-up of the initial direct participants in the new ‘fix’ is somewhat mired in controversy.

Many had believed the number of direct participants would be expanded into double figures and include at least one Chinese bank – or possibly even three – among its numbers.  In the event it appears that the direct participants in setting the LBMA Gold Price, as it is now called, comprise the four banks which were involved in the old London Gold Fix, plus two more only (Goldman Sachs and UBS) – and no sign of any Chinese involvement.  In a prior article on Mineweb.com – I had commented that it was by no means certain that there would be any Chinese participation at the start – see: Fixing the Gold Fix – with or without the Chinese banks?, which obviously has proved correct.   The fact that, in the event,  by far the world’s biggest gold consumer – whatever the World Gold Council and GFMS may say in their analyses, which uses a very limiting definition of consumption – should not be involved in the new benchmarking process may well indeed be seen as a ‘fix’ in the worst connotations of that word in  modern parlance.

We do assume though that there will be sufficient pressure on the London Bullion Market Association (LBMA), which owns the intellectual property to the London benchmarking process, and ICE Benchmarking Administration (IBA), which is handling the mechanics of the process, to involve participation by one or more of the three Chinese banks which have expressed interest in being involved and would appear to meet the strict qualification terms imposed.  These are the Industrial and Commercial Bank of China (ICBC), the Bank of China, and China Construction Bank.  The first of these is the world’s largest bank in terms of assets and it seems to an outside observer that it is inconceivable that any true new gold price benchmarking system should not at least include the world’s biggest bank from the world’s largest gold consuming and producing nation.  Outside observers may also well reckon the selection of the new process participants does indeed comprise a ‘Fix’ in order to try and maintain the status quo for as long as possible.

Indeed the LBMA and IBA have been remarkably tight-lipped so far about the selection process for the new LBMA Gold Price participants, or even as to who was going to be the ‘chairman’ of the benchmark setting group (despite this being supposedly a fully electronic process).

So why are no Chinese banks involved?  Undoubtedly the LBMA/ICE will come up with some spurious technical reason which has so far delayed any Chinese inclusion and that they will be working towards some Chinese involvement – but exactly when this might occur will probably be unspecified.  There may undoubtedly be a fear that once the Chinese banks are involved, the Western bullion banks which have set the London gold price benchmarks for nearly 100 years, will eventually lose control of the process and the Chinese will come to dominate it given the seemingly ever-growing demand for gold there and in other Asian nations and the huge physical gold flows from West to East.

 

 

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2 thoughts on “Is the new LBMA Gold Price just another Fix? $1171.75 the first new benchmark price

  1. Ronan March 20, 2015 / 5:51 pm

    Good article. Yes indeed, the way this plays out with the Chinese banks will be interesting. ICE has just updated its website with the eligibility criteria for being a direct participant:

    – Ordinary Member accreditation from the LBMA

    – Individuals with appropriate experience, skill and training

    – Organisational and governance arrangements

    – Appropriate credit lines, or equivalent arrangements

    – Clearing/settlement arrangements with existing Direct Participants

    Chinese banks would qualify on all accounts. It’s interesting that ‘organisational and governance arrangements’ is listed as a criteria. This was not a criterion in the Silver Price list of criteria.

    Org and gov arrangements? A cheap LBMA tactic to try to keep out the Chinese?

    Like

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