A key part of the gold market
will see a major shift Friday
Mar 18, 2015
New gold price medium may lift China’s ‘secretive veil’
By
MYRAP. SAEFONG
MARKETS/COMMODITIES REPORTER
SAN FRANCISCO (MarketWatch) — On Friday, for the first time in close
to a century, the gold market price fix is about to change. It is a move
that could potentially provide a better view of China’s insatiable
demand for the precious metal.
The London Bullion Market Association said the LBMA Gold Price will launch on Friday, with the ICE Benchmark Administration
operating the auction process. That will replace the so-called London
Gold Fix, a widely-used pricing medium that has been around since 1919
and is administered by London Gold Market Fixing Ltd. twice daily.
“The changes taking place with the new gold fix could be a game
changer for gold trading as we know it,” said Kevin Kerr, president of
Kerr Trading International.
Here’s why:
The London Gold Fix, which will be discontinued after Thursday, is
determined by just four participants. The nearly 100-year-old, medium
has also been the target of decades of manipulation allegations.
But the LBMA has said
the electronic auction process for setting the gold price is designed
to be transparent and to allow as many participants as possible.
“The new method for fixing the gold price daily will be more
reflective of that day’s collective price of gold on the world market,”
said Jim Wyckoff, senior analyst at Kitco.com, adding that he believes
the previous London fix “was not greatly askew on that determination.”
China is expected to participate directly in setting the new price
fix, which, in theory, would make inflows and outflows out of the
world’s second largest economy, and one of the largest gold buyers, more
apparent.
“This opens up the playing field for gold trading, and adds an
entirely new spectrum of possibilities and participants, mainly the
Chinese, on the world stage,” Kerr said. “It may lift the very secretive
veil” of China’s gold consumption Kerr noted.
For it is part, LBMA said it won’t reveal the participants for the new pricing medium until the day of the launch.
But if the Chinese banks are directly involved in the fixing of the
gold price, “they can arbitrage price differences between Shanghai and
London [and smooth] out the market … making it an international, 24-hour
market,” said Julian Phillips, founder of and contributor to
GoldForecaster.com.
The new fix isn’t expected to affect gold prices GCJ5, +0.29% in the near term.
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