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Developments in the LBMA Gold Price

By Matthew Glenville, COO, ICE Benchmark Administration

Published on March 9, 2017

Since taking over responsibility for the London Gold Price in March 2015, ICE Benchmark Administration (IBA) has been at the forefront of developments in the gold market. In this article, COO Matthew Glenville, discusses the latest developments in the LBMA Gold Price.

In 2015, IBA successfully transitioned the former London Gold Fix from a conference call to the independently administered, transparent and electronic auction process, which now underlies the LBMA Gold Price.

Running the Gold Auction

IBA runs two electronic, tradeable auctions each day at 10.30 a.m. and 3.00 p.m. London time for unallocated, Loco London spot gold. IBA publishes the price for the final round as the LBMA Gold Price. The price formation is in USD and the final price is converted into the benchmark in multiple currencies including Australian dollars, British pounds, Canadian dollars, euros, onshore and offshore yuan, Indian rupees, Japanese yen, Singapore dollars, South African rand, Swiss francs, Malaysian ringgit, Russian rubles, Thai baht, Turkish lira, and New Taiwan dollars.

When IBA took over responsibility for the LBMA Gold Price in 2015, we established an Oversight Committee to ensure the benchmark fulfils the needs of the market by evolving it based on market requirements and regulations. The Gold Oversight Committee includes a diverse cross section of the market, including benchmark users, market infrastructure providers, participants and representation from IBA.

Strengthening the Benchmark

IBA has grown the number of participants from four to 14, including four Chinese firms. Volumes have more than doubled and our first indirect participant recently joined, with more expected to follow in the coming months. Growing and diversifying participation in the gold auction, both geographically, and across the industry has been key to strengthening the credibility of the LBMA Gold Price.

Firms have several ways to participate in the auction:

  • As a Direct Participant – Direct Participants can trade and settle with the other Direct Participants, and who usually place orders in the auction for their clients and for their own proprietary business.
  • As a client of a Direct Participant – clients call or send in orders via Direct Participants.
  • As an Indirect Participant – Indirect Participants are clients of Direct Participants, but they have their own screen to the system (WebICE) and manage their own order entry.

As the administrator, operating and supervising the auction is part of our daily routine at IBA. However, our role extends beyond the daily production of the benchmark price. We are continuously working to raise the credibility of the benchmark through increased participation and volumes in the auction, high quality benchmark administration, improved governance and oversight and looking at new developments which enable us to adapt to market needs.

New Developments in the Gold Market

In March 2017, IBA will introduce central clearing to the gold auction, marking the latest development in the LBMA Gold Price auction. Central clearing will be enabled by the ICE’s new London Gold daily futures contract for Loco London Gold, which launched on 30 January 2017. The new contract trades on ICE Futures US and is centrally cleared through ICE Clear US while delivering unallocated Loco London gold.

In October 2016, in response to increased demand from Asian markets, we announced our plans to work with SBMA and LBMA on a feasibility study to run an additional auction to take place during the Singapore trading day. This auction would run to the same specification as the existing LBMA Gold Price auctions in London (see “How the LBMA Gold Price is Set”).

In addition to the feasibility study, to reflect the growing interest in the gold market in the region, since November 2016, IBA has published the LBMA Gold Price benchmark in prices per ounce and prices per gram in the following additional currencies: Singapore dollars, Australian dollars, Canadian dollars, Swiss franc, onshore and offshore yuan, Indian rupees, Japanese yen and South African rand. In February 2017, IBA added the following currencies: Malaysian ringgit, Russian rubles, Thai baht, Turkish lira, and New Taiwan dollars.

More information on the LBMA Gold Price is available at https://www.theice.com/iba/lbmagold-price.

How the LBMA Gold Price is Set

The LBMA Gold Price benchmark is published twice a day using the price from the final round of each gold auction. The gold auctions start at 10:30 a.m. and 3:00 p.m. London time and are run on the WebICE electronic trading platform.

The auctions provide a market-based platform for buyers and sellers to trade unallocated Loco London spot gold. The price discovery is in USD and, at the end of the auction, the USD per ounce price is converted into the LBMA Gold Price in multiple currencies including: Australian dollars, British pounds, Canadian dollars, euros, onshore and offshore yuan, Indian rupees, Japanese yen, Singapore dollars, South African rand, Swiss francs, Malaysian ringgit, Russian rubles, Thai baht, Turkish lira, and New Taiwan dollars.

The auctions run in rounds lasting 30 seconds. At the start of each round, IBA publishes the price for that round and then participants enter their buying and selling volume. At the end of the round, if the difference between the buying and selling volume is within the imbalance threshold (10,000 ounces), then the auction is finished and the price is set. If the difference in volume is larger than the imbalance, IBA announces a new price and begins a new auction round.

Orders carry over from round to round and participants can cancel or adjust their orders at any time during the rounds. The minimum order size is 1 ounce, to allow client orders to be exactly represented. Participants can place as many orders as their business requires. Any imbalance is shared equally between the Direct Participants.

Matthew Glenville is the Chief Operating Officer of ICE Benchmark Administration (IBA), an independently capitalised subsidiary of Intercontinental Exchange, Inc, which administers the following systemically important benchmarks: ICE LIBOR, the LBMA Gold Price and ICE Swap Rate, and the ISDA SIMM Crowdsourcing facility. Prior to joining IBA in early 2014 Matthew spent seven years working for RBS and Bank of America. Matthew has a bachelor’s and master’s degree from Oxford University in Physics and Philosophy.

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