Gold price benchmarking battle commencing

The London LBMA Gold Price benchmarking process has this week added three new participants to its benchmarking process, one of which is the Bank of China.  Meanwhile reports indicate that a second Chinese bank (China Construction Bank) is also to be approved for participation among the benchmark setters.  It thus looks as though there is an ongoing move to try and maintain the London influence despite the move of gold trade eastwards and continuing accusations of lack of transparency in the process.

It should be recalled that when the new benchmarking process was set up earlier this year there was considerable speculation that up to three Chinese banks, which would seem to meet all the parameters to membership of the elite group of price setters, would be involved.  Come the event there was considerable disappointment amongst the gold bulls in particular, and some others, that no Chinese banks were involved.  Indeed the initial participants were effectively the same banks which had been participating in the old system.  These were subsequently joined by first Goldman Sachs and UBS and then by JP Morgan (See: Red rag to gold bulls – JPMorgan added to LBMA Gold Price Banks) making for a grouping which would raise the blood pressures of those who believe in gold price manipulation by the bullion banks in conjunction with certain central banks as the LBMA participants then comprised virtually all the usual suspects in suggested gold price rigging scenarios……..

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Gold price benchmarking:let battle commence

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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.