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

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.

 

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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.

 

 

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

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