Report: London OTC Gold Market Nearly As Large As Comex
(Kitco News) - Average daily gold turnover was$36.9 billion and 30.2 million ounces in the London over-the-counter market duringthe last week, the London Bullion Market Association reported Tuesday uponreleasing a new report aimed at increasing transparency in the market.
Average daily silver volumeduring this period was $5.2 billion and 359.3 million ounces, the report said.
Some analysts pointed out thatthe data show that for one week anyway, the New York-based Comex gold marketwas slightly larger than the London market, but both far exceeded the size ofthe world’s third-largest market in Shanghai.
London is one of the world’smajor gold-trading centers, but transactions tend to be over the counter (OTC)between banks, brokers and traders. There has been a call for greatertransparency in recent years, particularly amid charges of market manipulation.So beginning this week, the LBMA is releasing data on the size of the goldmarket for the previous week on Tuesdays. The LBMA said it will move to dailyreports in three months.
“This is an exciting moment fortransparency in the global OTC market, with the next chapter to includepublication of data for platinum and palladium,” said Ruth Crowell, chiefexecutive officer of the LBMA.
The new data represent all LBMAmarket makers’ and some full members’ share of the loco London and loco ZurichOTC markets, the gold organization reported.
The significance of the new data“should not be understated,” said Matthew Turner, associate director forcommodities and economics strategy with Macquarie Capital Europe Ltd. Hiswritten analysis accompanied the LBMA report.
“For the first time in the longhistory of the London gold market, its size is not guesswork but a reliablemeasurement, a notable achievement given the variety of participants andproducts that it encompasses,” Turner said.
“But this is just the beginning.After all, a snapshot can only tell us so much. The real benefit of data seeshow it moves over time, especially once we have daily publication in 1Q 2019and data on the platinum and palladium markets.”
The report showed that for theweek, members traded 95 million ounces of gold in spot contracts, 46.5 millionounces in swaps and forward contracts, 4.1 million ounces in options and 5.4million ounces in leases, loans and deposits. Trading in silver totaled 1.1billion ounces in spot contracts, 651.2 million ounces in swaps and forwards,36.7 million ounces in options and 43.7 million ounces in leases, loans anddeposits.
“How big is the LBMA members’London OTC trading compared to other gold markets? Pretty big,” said Turner.
Still, CME Group’s U.S.-basedComex futures and options market was 13% bigger at around 34 million goldounces a day, Turner pointed out. However, he cautioned that the figures willvary and it will take some time to make clear where the most volume occurs. Acertain amount of volatility occurs in both markets. Still, Turner pointed outthat both markets are far larger than the next biggest one -- China’s ShanghaiFutures Exchange, which averaged around 2.6 million ounces per day over thesame time.
In the case of silver, Comexdaily trading volume was 552 million ounces, compared to LBMA members’ volumeof 359.3 million, Turner pointed out. The Shanghai exchange was third at around62 million ounces.
Turner provided data to show acomparison of the size of the LBMA market to other outside markets. The $36.9billion-per-day gold market over the last week was “in the same ballpark” as2017 average daily trading volume of $44 billion in U.K. government bonds,known as gilts. The $36.9 billion gold market exceeded the $22 billion dailyaverage for London Metal Exchange copper in 2017, although it was short of the$50 billion daily average for the so-called “big five” LME base metals (copper,aluminum, nickel and tin).
“FX [foreign-exchange] tradingvolumes are in a league of their own,” Turner added. “The BIS’s [Bank ofInternational Settlements’] triennial survey shows the daily turnover ofUSD/EUR, for instance, is some $1,172bn/day.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
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