LBMA

New York still setting gold price although bulk of trade is through London

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New York still setting gold price although bulk of trade is through London

Julian Phillips’ latest analysis of what is happening in the immediate gold and silver markets and of what is really driving the price movements.

New York closed Monday at $1,225.30 up 40 cents over Friday’s close. Asia and London let it slip. The LBMA Gold price was set at $1,219.65 down $8.50 over Monday’s level. The euro equivalent stood at €1,089.12 up €11.89 while the dollar was stronger and the euro weaker at $1.1198 down from $1.1401 against the euro. Ahead of New York’s opening, gold was trading in London back over $1,220 and in the euro at around €1,090.

The silver price closed at $17.68 up 15 cents on Friday’s level. Ahead of New York’s opening it was trading at $17.40.

Yesterday saw sales of 5.668 tonnes of gold from the SPDR Gold ETF but nothing from the Gold Trust. The holdings of the SPDR gold ETF are at 718.243 tonnes and at 166.14 tonnes in the Gold Trust.  These were heavy sales and, we suspect from the same sellers that sold the heaviest tonnage since early 2015 in the last week and more. The sales were large enough to restrain the gold price but not to pull it down.  This is what the consolidation of the gold price is all about.

The dollar index is stronger at 94.88 up from yesterday’s 93.60.  The euro is much weaker today at $1.1090 after yesterday’s $1.14o1 and remarks from the ECB that they will increase QE in months when liquidity is low in holiday months. Is the correction over? Perhaps it is and as we said yesterday the market expectation and ours is that we will see the euro eventually at $1.

The gold market is moving because of currency issues now. But in time the gold price, as it has done of late, walks its own road and rises in the euro too and often in the dollar, at the same time. Gold will move against all currencies and is not linked to a specific currency. But when the market allows it will follow a currency.

This brings us to the concept of pricing power, once more. It is apparent over the years of this century that New York, where a small amount of physical gold is traded, the gold price is ‘made’. London where around 80% of the globe’s market traded physical gold is traded, has a smaller say in the matter. The bulk of gold traded outside the market usually on contracts or with central banks, has no say in the gold price. Instead it is convenient to refer to the New York or London price [currently the twice daily LBMA Gold Price] as a price on which the contract price will be based. The question is, “Do New York’s prices or even London’s prices represent true demand and supply?” No is the answer! Markets that genuinely do this may be called perfect because academically we would like to see this, but in the bulk of markets it is only the marginal supply and demand that prices the product along with speculators, day traders and dealers. Gold and silver are no exception. Until a credible alternative pricing mechanism is established that contractors and dealers accept, the markets in silver and gold will remain imperfect. With the Yuan contract “Fixing” in Shanghai coming this year, will that price become the alternative? Let’s see?

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com  and www.silverforecaster.com

Will gold fix in yuan take over from London?

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Julian Phillips’ latest gold and silver market commentary and what he sees as the main market drivers with Indian imports running at high levels

New York closed at $1,188.80 on Monday. Asia held it there and so did London. The LBMA Gold price was set at $1,187.40 up $8.40 on Friday. The euro equivalent stood at €1,070.69 up €23.62 while the dollar was stronger at $1.1090 up from $1.1260 against the euro. Ahead of New York’s opening, gold was trading higher in London at $1,187.60 and in the euro at €1,069.09.

The silver price closed at $16.42 up 26 cents on Friday’s level. Ahead of New York’s opening it was trading at $16.40.

Yesterday saw very little gold trading done in New York with London closed for the Bank Holiday. The dollar is rising today with the dollar index at 95.80 up from 94.64 yesterday as did the dollar at $1.1084 from Friday’s $1.1269. There were purchases of gold into the SPDR gold E.T.F. of 2.389 tonnes on Friday but none yesterday and none from or into the Gold Trust on Friday or Monday. The holdings of the SPDR gold ETF are at 741.750 tonnes and at 165.58 tonnes in the Gold Trust.

With the dollar’s correction now seemingly over, we expect to see it rise against all currencies again. This time it is possible to see the dollar reach $1: €1. But other currencies such as the Yen may fall further against the dollar.

Indian imports of gold in the first quarter of the year has been reported as up by 19.5% for the 2014-15 year, according to the Reserve Bank of India. Bullion imports rose to $34.32 billion for the 2015 year ending in March, up from $28.7 billion imported in the fiscal 2014. This is roughly 900 tonnes in the last year against roughly 750 tonnes in the previous year. Please note that these figures exclude smuggled gold, which could be 250 tonnes +.

The rise in imports is moving faster now as confirmed by the Commerce Ministry, which reported imports nearly doubling in March to $4.98 billion or roughly 130 tonnes. The implication of this figure, if imports continue to rise throughout the year at this pace, could lead to imports hitting 1,200 tonnes, excluding smuggled gold. While duties of 10% persist, smuggled gold will continue to pour in, particularly if the developed world markets hold prices around the $1,200 level.

Taking Chinese demand at the level we saw last year together with Indian demand, we see a figure way above total newly mined production levels. Add all Asian demand and Middle Eastern demand and we see them taking all available gold in the markets if prices remain down.

This adds a large question mark over using the LBMA Gold price as a reference price for gold contracts. Later in the year we will see a Yuan Gold Fix. If that comes in at a higher level, when translated into dollars, we wonder if the Yuan gold Fix will be used as the reference price for contracts?

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.sillverforecaster.com

London Bullion Market Association Launches Strategic Bullion Market Review

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LBMA Press Release
The London Bullion Market Association has commissioned EY to undertake a study of the
London bullion market and to prepare recommendations for the continued development of
the market. The aim of this strategy work is to identify opportunities for market efficiency
and evolution, while increasing transparency and liquidity in line with the Fair and Effective
Markets Review (FEMR) launched by the Bank of England, HM Treasury and FCA which is
due to report in June. In August 2014, FEMR made recommendations to regulate a further
seven major UK based benchmarks, including those for the LBMA Gold and Silver Prices,
which subsequently became regulated.
Within the core parameters of enhancing liquidity and transparency, the study will consider
a range of options for the benefit of the bullion market.
“I invite participants from the global bullion market to engage in the LBMA’s Strategy
Study. EY brings momentum and independence to this work which started in 2014,” said
Ruth Crowell, CEO of the LBMA. “We’re looking forward to receiving the report in the
summer and sharing the recommendations and findings with Members and global market
participants.”
Martin Watkins, FinTech Director and EMEIA Co-Head of Exchanges and FMI at EY,
comments “Many of the most exciting advances in technology are coming from the London
fintech market. In order to make sure that London remains central to the international
precious metals market and that the existing liquidity is maintained or enhanced, it’s going
to be important to assess how the rapid evolution of trading technology and the rampant
innovation in fintech can be leveraged for the good of the market and drive the future
evolution of the LBMA and the wider London bullion market.”

JP Morgan joins the ‘Usual Suspects’ in LBMA gold benchmarking process

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The ICE Benchmark Administration website now shows that JP Morgan Chase has become the seventh Direct Participant in setting the twice daily LBMA Gold Price benchmarks – a selection which will be indeed inflame those gold price manipulation-believers who reckon that JP Morgan and Goldman Sachs are behind almost any irregularity in global financial markets.

Lawrie Williams

If any selection could be seen as inflaming the gold price manipulation-believers, it would be the addition of JP Morgan as one of the new participants in the LBMA Gold Price benchmarking process.  And guess what?  ICE Benchmarking Administration (IBA), which runs the new benchmarking process, confirms that indeed JP Morgan has joined the Direct Participants in the new benchmarking process – not by any announcement, but just by the inclusion today of JP Morgan Chase on its website as being among the members of the panel which now sets the twice daily London benchmark gold price to replace the old Gold Fix.

So the original four members of the old London Gold Fixing panel – Barclays, HSBC, Scotiabank and SocGen – have now been joined by Goldman Sachs, JP Morgan and UBS as the Direct Particpants which now set the new gold price benchmarks.

Before the new panel of Direct Particpants was finalised it had been widely believed that one or more of the Chinese banks – Bank of China, ICBC and China Construction Bank – would be among the new members – a speculation which was never squashed by the LBMA – and right up to the first application of the new electronic benchmarking process a week ago many believed that indeed one or more of these three banks would indeed be involved in the process. It was not to be, although all of them would appear to meet the qualification terms for Direct Participants (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) and it had been announced that the three Chinese banks had indeed expressed interest in being among the first Direct Participants.  Why none have become involved so far has not been made apparent.

If the reason for replacing the almost century old gold price benchmarking process had been brought about because it was beginning to be seen as being potentially open to price manipulation by the participants, something which is totally unproven and has always been hotly denied, then the selection of the banks which had formerly been involved as partipants in the new process, plus Goldman, JP Morgan and UBS, seems to have just been a red rag to those gold bulls who believe the gold market is indeed manipulated.  The new LBMA Gold Price participants are viewed by this price manipulation-believing sector as being those who are already probably most involved in finacial manipulation of the system.  They will now reckon that this just confirms their belief.  JP Morgan and Goldman Sachs in particular are very much the betes noires of the manipulation believers.  And they will also see the apparent freezing out of the Chinese banks as just confirming their viewpoint.

Thus one suspects the manipulation-believers will remain up at arms over the new London gold benchmarking system until the number of Direct Participants is broadened to include some members who are seen as being outside the current western financial elite.  And even if this happens, they will still undoubtedly find other points to criticise.

 

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

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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.

 

 

The new London Gold ‘Fix’ being implemented with undue haste?

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The announcement that the new LBMA Gold Price benchmarking system will commence in March this year may bring this in sooner than might be considered ideal.  Is the LBMA worried about potential competition from Asia in the setting of a new global gold benchmarking system?  Check out full article on http://www.mineweb.com/news/gold/new-london-gold-fix-undue-haste/

Lawrence Williams

Some additional details have now been announced regarding the replacement for the London Gold Fix.  The new electronic system which is to replace the Fix is to be named The LBMA Gold Price (although one suspects that the media may continue to call it the London Gold Fix) and the new system is due to be implemented at a so far unspecified date in March this year.

An announcement from the company selected to handle the new London benchmark pricing process, Intercontinental Exchange (ICE), and from the London Bullion Market Association (LBMA), which made the decision to appoint ICE to manage the pricing mechanism to replace the nearly century old Gold Fixing process which had come under considerable criticism as being too opaque and potentially subject to manipulation, was released Monday.  Among other things it noted that ICE Benchmark Administration (IBA), as the administrator for what will now be known as the LBMA Gold Price, will transition to a physically settled, electronic and tradeable auction, with the ability to participate in three currencies: USD, EUR and GBP. Within the process, aggregated gold bids and offers will be updated in real-time with the imbalance calculated and the price updated every 30 seconds. IBA will use ICE’s widely distributed front-end, WebICE, as the technology platform which will allow direct participants, as well as sponsored clients, to manage their orders in the auction in real time via their desktops……

To read the full article on Mineweb click on the link in the intro above or here

LBMA’s panel of experts’ views on gold, silver, platinum and palladium in 2015

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Each year The London Bullion Market Association (LBMA) organises a competition whereby it invites a number of professional analysts, mostly from banks and other financial institutions, to predict precious metals prices for the year ahead.  This year it received entries from a record 35 such analysts and one would think the accumulated expertise, averaged out, might be a great indicator of what is to happen in the year ahead.  But, be warned,  on past performances this is sometimes far from  the case.  The individuals are also asked to give their reasons for their predictions and these make for some interesting reading.  The full resultant ‘survey is available for download directly from the LBMA by clicking on this link.

A slightly edited version of the executive summary for the competition entries and averages is set out below:

LBMAtab

Tabulation courtesy of the LBMA

This year’s LBMA forecast contributors are predicting that the gold price will remain broadly flat in 2015, but are more bullish (marginally) on the price prospects of the other precious metals forecasting increases of 2.1% (silver), 5.6% (platinum) and 5.3% (palladium) from that prevailing over the first two weeks of the year. Ross Norman of Sharps Pixley is the most bullish analyst with his forecast of $1,321 for the average gold price which gives him a great advantage should the gold price take off this year as anything above this level will gain him victory in the gold price competition and add to his impressive tally of past first places.  Adam Myers of Credit Agricole the most bearish with $950 and he again would benefit should the gold price take a really big dive this year and end amongst the debris promulgated by the out and out anti-gold brigade.

(For the record, here at LawrieOnGold we do believe that there are enough positive factors out there for gold that Ross Norman’s prediction could even be conservative and that Adam  Myers’ bleak forecast, which if it came about would probably drive 50% of the world’s gold mines into serious deficit and likely closure, is the most unlikely result for the year.  But we shall see.)

The analysts cite a number of factors which they see as likely to restrain gold prices in 2015, including the possible further strengthening in the US dollar, interest rate hikes by the Fed possibly commencing  in the second half of 2015, QE programmes in Europe (although some see this as gold positive) and a weak oil price reducing gold’s attraction as a hedge against inflation.  But the price could be supported by strong retail demand from China, India and elsewhere but only limited support is expected this year from the official sector suggesting a decline in Central Bank purchases.

Analysts are slightly more optimistic about the prospects of silver in 2015, forecasting a modest increase in price of 2.1% to $16.76/oz, with prices forecast to trade in an average range of $13.91 to $19.36. Ross Norman is again the most bullish ($18.56) with Robin Bahr of SocGen the most bearish ($13). Negative price factors again include expected strengthening of the dollar, disinflation as well as slow growth from China and the Eurozone thus affecting industrial demand for the metal. But some positive factors which could lend support to prices include expected additional global investment in solar power, continued support of silver ETFs and expectations that retail investors may take advantage of attractive prices.

Analysts are more bullish about the prospects of the platinum group metals in 2015 despite the current fall in the platinum price to below that of gold.  Platinum is expected to be the best performer with prices forecast to average $1,294 in 2015, 5.6% higher than its price in the first half of January although still 6.6% below its average price in 2014. Bart Melek of TD Securities offers the most bullish forecast of $1,434 and Glyn Stevens of International Commodities the most bearish at $1,098. Analysts cite positive influences on the price to include a supply deficit (despite expected improvement in South African production).  Rising costs might also push prices higher along with strong demand from China and industrial investors. On the negative side is the weak outlook for gold prices and macro-economic factors which are likely to act as a restraint on prices.

Palladium prices are forecast to average $838.40, up 5.3% from where it started the year and 4.4% above its average price in 2014. Rene Hochreiter of Sieberana Research is the most bullish with a forecast of $950 and again Glyn Stevens the most bearish with a forecast of $738. The palladium price is expected to benefit from a supply deficit as well as improving industrial demand and strong car sales in North America and China.

Overall all credit should be accorded to the analysts for setting precise forecasts out for all to see opening their judgements  up to negative comment should they end up being way out in their predictions. But then the kudos for being nearest to correct can bring some very positive accolades from their peers and followers.

To find out more about what the analysts predict will happen to prices for precious metals this year, and tables showing also their high and low price forecasts for the precious metals and what the factors are which are likely to affect their price, read their ‘expert’ views by clicking on the link noted at the start of the article and repeated here.

LBMA top gold forecaster: gold price to average $1321 in 2015, silver $18.56

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The annual LBMA precious metals price competition’s top gold forecaster over the years, Sharps Pixley’s Ross Norman, is bucking the mainstream analyst consensus with a $1321 average gold price forecast for 2015.  Silver $18.56, Platinum $1268, Palladium $876.  Slightly modified version of article posted to Mineweb.com – the website for the best global mining and metals news and comment.

Lawrence Williams

In his submissions to this year’s LBMA precious metals forecasting competition, Ross Norman who heads up London bullion broker Sharps Pixley, and who has been probably the most successful forecaster in the LBMA panel in the past, says he is going out on a limb with his forecast for the gold price average this year at $1321. (It would certainly have been out on a limb last month although perhaps seems less so now given the gold price performance so far this year.) He is also looking for a gold price high of $1450 and a low of $1170 during the year. With most of the forecasting panel being bank and institutional analysts, whose forecasts tend to be much more conservative – some would say decidedly bearish – Norman must have a good chance of adding to his wins if gold’s advances continue.  The LBMA is expected to publish its full listing of its annual competition forecasts later this week, along with the analyst participants’ reasons for their predictions.

Norman has been the outright winner of price forecasting sections of the LBMA competition five times in the past  – usually by ‘going out on a limb’ which was a pretty good policy when the gold price was in its bull market phase  Norman has also had numerous Top 10 positions.  Perhaps he tends to favour the more bullish trends so will he be back on track again this year?  If the current momentum in the gold price gathers more strength still his forecasts could even prove conservative but it would perhaps be foolhardy to automatically assume that gold’s good start to the year will not beget a serious correction at some stage later on.

Norman’s stated reasons for his fairly positive predictions on gold this year are as follows: “If markets move on what you don’t know today, but will know tomorrow then it follows that many factors such as a US interest rate rises should already be factored into the current price… it also begs the question what the new drivers for 2015 will be. We see ongoing declines in economic growth prompting central banks to fight deflation by resorting to inflationary pressures in H2.  If our outlook for gold in dollar terms is bullish, in emerging currencies it may be even more so as investors seek to insure or hedge against currency debasement. As such, we foresee good demand for the physical.”

He sees gold already demonstrating that it has turned a corner and sees investor flows returning strongly but reckons there are unlikely to be runaway prices beyond the $1450 level without either significant new product innovations or without the sort of black swan events in the economy that few would wish for, although the potential for these looks ever greater following the SNB’s decision of last week to drop the Swiss Franc peg against the Euro.

He is also fairly bullish on silver, looking for an average price of $18.56 over the year, encompassing a high of $21.75.  In percentage terms these are big rises from the prices prevailing at the beginning of the year.  This is commensurate with the general pattern of silver moving up faster than gold on the upside – and he also reckons that investors will take comfort from silver ETF holdings which have remained firm (unlike gold ETFs) coupled with reported retail sales of the physical – coins and bars -which have also remained robust.

He seems to be a little more sanguine in his views on platinum.  Despite many analysts seeing platinum in serious supply deficit this year, he is looking for a yearly average price at $1268 – somewhat below that of his gold forecast suggesting that at some stage during the year the platinum price will fall back below that of gold as it has now already done on Friday after struggling to stay above the gold price level for most of last week.  He does foresee a high price during the year of $1480 – thus higher than that he sees for gold.

Finally there is palladium – the precious metal probably most supported by analysts in recent months due to what are seen as continuing strong fundamentals.  Norman is looking for an average price over the year here of $876 with a 2015 high reaching $975 as against the price at time of writing of $755.  Palladium was last year’s best performer in the precious metals sector and Ross suggests it may have trouble matching last year’s 10.9% increase, but even so he feels the junior precious metal as having another positive year based on continuing attractive supply/demand fundamentals despite the backdrop of a relatively weak global economy. He also points to an assessment suggesting an ongoing supply deficit in the order of 1.4 million ounces which will keep the metal well bid. Of the four metals, palladium remains once again his favourite, although, on his predictions perhaps gold and silver will do even better!