LBMA and the future of gold trading

[Bumble]

There is an interesting recent video on Youtube called "Trouble in Paradise as LBMA and COMEX Challengers Emerge" from a channel called GoldSilver Pros. https://www.youtube.com/watch?v=1x4ysOBdsmM

It is about half an hour long. If you don't have time to watch, here is my own brief summary.

According to a Reuters report (https://www.reuters.com/article/gold-lbma-exclusive-idUSKBN27S0NK), the LBMA has sent a letter to a number of countries that are involved in bullion dealing, expressing concern that they are not doing enough to prevent gold being used for money laundering and/or that they are not being sufficiently concerned about whether their gold is being sourced unethically. Reuters report that they believe the letter is specifically targeted at UAE, because Dubai has become a major trading hub for gold and has many refiners that are not LBMA registered. The unspoken threat is that the UAE might be blacklisted by the LBMA if they fail to comply with their standards.

However, the LBMA is just a trade body and has no authority as a national or international institution. Ahmed Bin Sulayem of the Dubai Multi Commodities Centre responded with a post on LinkIn (https://www.linkedin.com/pulse/raising-bar-ahmed-bin-sulayem/) accusing the LBMA of monopolistic practices and double standards, and suggesting that the gold industry would be better served by a new international regulatory body.

The Comex, which during 2020 was supported by the LBMA when it was struggling to source physical gold, has joined in by delisting the UAE based Al Etihad Gold Refinery and withdrawing eligibility of its bars. (https://www.cmegroup.com/notices/marget-regulation/2020/07/MKR07-31-20C.html)

The presenter believes that the reason behind this spat is that the forthcoming implementation of the new Basel banking rules, including the Required Stable Funding provisions, will put pressure on the LBMA, because it lacks liquidity. Evidence for this is that in 2013, the European Banking Authority failed to rank gold as a High-Quality Liquid Asset (HQLA) because the LBMA was unable to provide sufficient data to demonstrate the liquidity of the London gold market.

The LBMA itself published a note (http://www.lbma.org.uk/_blog/lbma_media_centre/post/net-stable-funding-ratio-update/) criticising the new funding provisions and claiming that they will result in increased settlement costs and reduced market liquidity. This is because the required Net Stable Funding Ratio (NSFR) does not account for *unallocated* balances of precious metals, which is the predominant form in which the LBMA holds gold.

The presenter's opinion is that the LBMA and the Comex may lose their grip on the international gold trade, and that international trade is likely to move towards the Asian and Middle Eastern countries.

[motorbikez]

35 minutes ago, Bumble said:

 

The presenter's opinion is that the LBMA and the Comex may lose their grip on the international gold trade, and that international trade is likely to move towards the Asian and Middle Eastern countries.

 

Yeah I have seen the video & IMHO the above is a good thing, whether it will happen is another matter LBMA & Comex will no doubt fight back along with the bullion banks to keep the scam going.

[Bumble]

There is an interesting follow-up to the issue of the new Basel rules. It is explained in an article written by Alasdair MacLeod and published on the GoldMoney website. Under the new rules, which come into force in Europe at the end of June, and in the UK on 1st Jan 2022, the following provisions apply:

• unallocated gold which banks hold on behalf of customers will not count towards reserves;
• unallocated gold which the banks buy from LBMA or other sources only count towards reserves at the rate of 85%;
• when banks hold both, i.e. unallocated gold as a liability and also as an asset, they cannot net the two off (they don't somehow cancel out).

The consequence is that there will be little demand from bullion banks to hold gold in unallocated form, which in turn will result in short positions being unwound, and a reduction in the supply of paper gold contracts. Since most gold trading in London takes place in unallocated form, this will have a huge effect on the activities of the LBMA, who are opposed to the changes and are lobbying for them to be revised. Alasdair's view is that they are unlikely to be successful, so we can expect the role of the LBMA in holding down gold prices by creating synthetic supply to be curtailed. This in turn will affect Comex by reducing contract volumes, further limiting the ability for gold prices to be suppressed. 

[Groundup]

https://youtu.be/T3Jmlzk5y7s

 

A YouTube video with Alistair MacLeod about LBMA

 

Edited May 15, 2021 by Groundup

[ady]

Robert Kientz analysis is very good and thought myself it was more a tussle for which bad guys were going to set the price. It will be interesting to see his final thoughts. 

[HerefordBullyun]

On 15/05/2021 at 01:34, Bumble said:

There is an interesting follow-up to the issue of the new Basel rules. It is explained in an article written by Alasdair MacLeod and published on the GoldMoney website. Under the new rules, which come into force in Europe at the end of June, and in the UK on 1st Jan 2022, the following provisions apply:

• unallocated gold which banks hold on behalf of customers will not count towards reserves;
• unallocated gold which the banks buy from LBMA or other sources only count towards reserves at the rate of 85%;
• when banks hold both, i.e. unallocated gold as a liability and also as an asset, they cannot net the two off (they don't somehow cancel out).

The consequence is that there will be little demand from bullion banks to hold gold in unallocated form, which in turn will result in short positions being unwound, and a reduction in the supply of paper gold contracts. Since most gold trading in London takes place in unallocated form, this will have a huge effect on the activities of the LBMA, who are opposed to the changes and are lobbying for them to be revised. Alasdair's view is that they are unlikely to be successful, so we can expect the role of the LBMA in holding down gold prices by creating synthetic supply to be curtailed. This in turn will affect Comex by reducing contract volumes, further limiting the ability for gold prices to be suppressed. 

Follow up artcle by Alistar mcloed - an excellent read!

https://www.zerohedge.com/commodities/end-paper-gold-silver-markets

Edited May 22, 2021 by HerefordBullyun