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What’s To Come Of The Gold & Silver Fix?

On the surface, there have been some unsettling bits of news coming out of the gold and silver markets, despite an overall unmoved price.  Day-in, day-out, for awhile, the gold price has been a BIG yawn…but this might be getting ready to change…Let’s explore some of the volatility in the gold market:

As I type this, the London metal Exchange (LME) is competing to create an alternative to the silver fix as the system plans to disband itself in August. The LME says it has planned three potential fixes to the fix in its bid to take over the pricing mechanism, for which there has been interest.

The London Metal Exchange, owned by Hong Kong Exchanges and Clearing Ltd (0388.HK), has submitted a proposal to replace to the current telephone-based method of setting the fix, in which a number of banks meet daily by phone in order to determine the price of silver, which will include better auditing and compliance, according to Chief Executive Gerry Jones.

The London Gold Fix

The London Gold Fix too is looking for a fix, and a discussion of gold buyers and sellers has onset, including a meeting to be held in July by the World Gold Council.

As I’ve gone over here in the United CPM blog, pricing benchmarks across the economic realm – from Libor and others – have seen increased scrutiny by regulators in both the United States and Europe, especially in the wake of the Libor scandal. US authorities are handing out fines left and right to western banking institutions.

Bullion banks, refiners, fund firms, central banks and mining companies have been invited to the forum by the World Gold Council to discuss a future solution for the fix. The first meeting, in what might be a series of meetings, will take place July 7 in London, and Britain’s Financial Conduct Authority will attend the discussion forum as an observer.

The London Bullion Market Association’s (LBMA) is having its own set of discussion aimed to find a replacement for the silver pricing mechanism, the silver fix.

Gold and silver fixing banks Deutsche Bank, Scotiabank, HSBC and other large bullion-trading banks will discuss proposals at a seminar on June 20.

Many are looking towards an electronic solution to replace the phone call method that reigned in the 20th century, which will be applied to price-setting for gold and platinum group metals. But nothing is for sure, as WGC stated:

“We simply seek to convene a debate on the issue … the gold and silver market are very different, and it is not necessarily the case that the solution found to replace the silver fix is then applied to gold at all,” WGC managing director Natalie Dempster told Reuters.

“The WGC’s perspective from its gold mining members and the exchange-traded funds investment community ensures an important dimension to the ongoing benchmark discussion,” LBMA CEO Ruth Crowell said.

For 117 years the gold fix has been used globally across industry to set the price of gold via a twice daily phone call by four banks which work out a gold price based on transactions between their clients.

Barclays Plc and HSBC declined to comment on whether they would attend the meeting, while Bank of Nova Scotia and Societe Generale were not immediately available to comment.

Alone it does not appear as if the changes at the gold and silver fix will have much of an effect on the gold and silver markets but it could be symptomatic of rumblings below. What if there are deeper issues here at stake? After all, Barclays Plc was fined 26 million pounds due to internal controls failure allowing a single trader to manipulate the setting of gold prices.

If these stories continue, I suspect there will only be continued volatility in the gold and silver prices with potentially unimaginable upside.

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