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China's LME will soon be publishing their own gold and silver fix prices in parallel to London

Goldhedge

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#1
China's LME will soon be publishing their own gold and silver fix prices in parallel to London

8:58 AMfutures market, gold, gold price, lbma, lme, London gold fix, silver, spot price1 Comment
On July 25, officials from the Hong Kong owned London Metals Exchange (LME) announced they would soon be publishing their own daily gold and silver prices in parallel to the long-standing London Gold Fix.

The LME had until recently applied to the LBMA to take over the daily metals benchmark pricing following the CME and Thompson-Reuters early exit from their price fixing scheme, but the LBMA instead chose the Intercontinental Exchange (ICE) earlier this month to take over the London Gold and Silver Fix.

The London Metal Exchange (LME) will start publishing gold and silver reference prices, the exchange told Reuters on Tuesday, potentially challenging the dominance of benchmarks administered by Intercontinental Exchange (ICE).

Precious metals producers and consumers around the world use benchmarks owned by the London Bullion Market Association to price contracts.

Intercontinental Exchange (ICE) sets the LBMA Gold Price twice a day via an electronic auction, and was selected this month to administer the LBMA Silver Price, defeating a rival bid by the LME.

The LME will publish alternative prices based on trading of its gold and silver futures, launched earlier this month. "Following a number of requests from key precious metals market participants, the LME intends to publish intraday reference prices for its gold and silver contracts," the LME told Reuters. - Straits Times

In the end, how this will affect the paper and futures price has yet to be seen, however the LME recently was given a license to conduct its own futures contract in gold and silver, and this means that the potential for a parallel price mechanism that is divergent from the one conducted by the LBMA each day is highly probable. And as we have seen over at the Shanghai Gold Exchange, where the price in the world's largest physical market is often higher than the paper price determined daily in London and New York, the chances of the LME siphoning off businesses from the Comex into their own contracts could facilitate an arbitrage, and an eventual usurpation of the LBMA's control over the prices of gold and silver.


 

Argent Dragon

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#2
Important QUOTE from article above >> " as we have seen over at the Shanghai Gold Exchange, where the price in the world's largest physical market is often higher than the paper price determined daily in London and New York"

It sounds hopeful that China would have a separate valuation mechanism, but my fear is that they only follow London with a few slight price upticks here and there to avoid the possible arbitrage described above in the last paragraph.
 

Weatherman

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I doubt that there will be much arbitrage activity, despite the somewhat higher prices in Shanghai Gold Exchange. Arbitrage would require selling (and delivering) physical metal in Shanghai and simultaneously buying cheaper paper contracts in London or New York, and holding those paper contracts in hopes that they will return real metal in delivery. However, the Crimex paper contracts may not deliver real metal because they can be settled in fiat dollars instead. That is too much risk for too little reward, unless the price difference is much greater.
 

oldgaranddad

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I doubt that there will be much arbitrage activity, despite the somewhat higher prices in Shanghai Gold Exchange. Arbitrage would require selling (and delivering) physical metal in Shanghai and simultaneously buying cheaper paper contracts in London or New York, and holding those paper contracts in hopes that they will return real metal in delivery. However, the Crimex paper contracts may not deliver real metal because they can be settled in fiat dollars instead. That is too much risk for too little reward, unless the price difference is much greater.
I agree with Weatherman. In addition China strictly controls gold imports and prohibits gold exports. So much for anyone trying to do any arbitrage.
 

Ragnarok

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#6
And as long as China's price is a bit higher, gold will flow East.

R.