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LMEprecious – New Opportunities for the Asia Pacific Precious Metals Market

By David Mears, Assistant Vice-President, Precious Metals Market Development, London Metal Exchange

Published on June 4, 2018

David Mears provides an update on London Metal Exchange’s LMEprecious one year after its launch, and explains what he sees as opportunities for the Asian market as volumes grow.

London Metal Exchange (LME) launched LMEprecious, which offers loco London spot pricing, together with daily and monthly futures for both gold and silver, in July 2017 in response to market demand and in close consultation with key precious metals stakeholders. This suite of exchange-traded and centrally cleared precious metals products delivers greater choice for market participants and modernises the gold and silver markets to better reflect the needs of global players in precious metals markets.

To develop LMEprecious, LME worked with a group of leading industry participants who were committed to providing a London based centre of liquidity, reinvigorate the market, and remove barriers to trading based on counterparty credit lines and establish transparency in a forward curve that stretches out to five years.

For many banks in particular, this provides significant capital savings, operational efficiencies and streamlined trade reporting.

Volume and Open Interest

LMEprecious launched on 10 July 2017 and by the end of 2017, the LME Gold contract had seen 1,989 tonnes of gold traded, making LME the fourth-largest global gold futures exchange for that period. Silver also saw strong volumes with 14,870 tonnes traded in 2017.

The growth of open interest (OI) has been an equally impressive story, with LME Gold and LME Silver at 30,000 lots and 5,000 lots (93t and 777t) respectively in the first four months of 2018 (Figure 1). The ability to trade liquid on-screen monthly contracts across the curve has seen considerable longer-dated open interest OI develop, with approximately 80% of OI beyond the first monthly date and significant OI out as far as 3.5 years forward.

The rapid establishment of trading volume and open interest serves to validate the drivers behind the contracts and demonstrates the commitment of the market to trade on-exchange and clear centrally.

Figure 1: LMEprecious open interest

*As of 24th April 2018

Opportunities for the Asian market as LMEprecious volumes grow

Loco London gold remains an integral part of global physical bullion trading. Most loco swaps are priced relative to loco London (loco London +/- USD per ounce) and many end users utilise loco London accounts to manage their bullion trading and hedging.

LMEprecious provides an additional deep source of liquidity to hedge outright loco London risk. On-screen spot liquidity is impressive with at least 100 lots of spot gold both sides and top of book consistently 20c wide. There is also a 60% margin offset between gold and silver for those who have exposures in both metals.

The benefits of trading on-exchange and clearing centrally, as outlined earlier, translate into deep liquidity on-screen right out to five years forward. This creates a vital source of liquidity for market participants looking at curve dynamics and opportunities further out. Indeed we have seen trades executed on-screen out to 3.5 years forward.

LMEprecious also offers a closing price curve each day based on trading activity on LMEselect, providing a transparent forward curve for the market. Feedback from a range of precious metals market participants across the value chain – including producers, refiners, banks and financial institutions – has been very positive.

Another key benefit for the Asian market is the increased transparency that LMEprecious provides. Real-time prices are available via the major market data vendors, and from this summer the data will be freely available on LMElive – LME’s own market data platform. This means anyone around the world will be able to have free access to real-time spot order book data and a streaming forward curve out to five years on their desktop or mobile device!

This is hugely valuable to market participants whether they are traders, producers or consumers looking to hedge, roll positions and manage risks.

The increasing internationalisation of the gold market also provides trading opportunities for market participants looking to manage basis risk or take a view on regional supply and demand dynamics. To this end LMEprecious provides a transparent, liquid, on-screen solution to trade in combination with other exchanges across the globe. Some brokers are already offering margin offset against gold positions traded on other major exchanges.

A golden era for global bullion trading

In response to client demand from Asia, in June 2018, LME will launch a liquidity provider programme to cover the period from 1 00 a.m. to 8:00 a.m. London time. Increasing liquidity during this crucial period crystallises many of the benefits described above for the Asian market; indeed most other exchanges see a significant share of trading during this time window.

Further ahead this year, LME will be looking to improve access for registered intermediating brokers (RIBs), notably offering system access so they can broker trades for clients and members on an anonymous basis and enter trade details.

Next on the agenda this year is trade-at-settlement functionality. This will constitute separate order books to allow buyers and sellers to match and trade at (or at a number of ticks above or below) a yet to be defined LME settlement or reference price. After this, LME is expected to launch gold and silver options, and then platinum and palladium futures in 2019.

David Mears is an Assistant Vice-President in the Precious Metals Market Development team at the London Metal exchange. He previously worked as an Associate Director in Commodities Sales at Standard Chartered Bank covering the precious metals clients globally. He has a BA in Chinese and Economics from London School of Oriental and African Studies (SOAS).

Alex Shaw is responsible for the development of the LMEprecious product suite and the LBMA Platinum and Palladium Price Discovery Process. Prior to joining the LME, he was a Strategy Consultant at Monitor Deloitte, where he led projects across financial services. Alex started his career with Accenture and Korn Ferry. He holds an MBA from INSEAD and an MA (hons) from the University of Cambridge.

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Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

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Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

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Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

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Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

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Ms Pawan Nawawattanasub

CEO
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Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

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Head of Asia-Pacific (ex China) and Global Head of Central Banks
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Mr Alan Liew

Head of Bullion & Commodities Trading
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Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

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Mr Nuttapong Hirunyasiri

CEO
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Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

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Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

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Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

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Mr Vinh Nguyen

Head of Precious Metals, Asia
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Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

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Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
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