Peter Hobson

LONDON, (Reuters) – A consortium of financial institutions and banks has developed trading guidelines to increase activity at auctions. These guidelines are intended to improve the reliability and stability of the benchmark gold and silver prices around the globe.

They are meant to give a true and honest snapshot of the spot market’s fast-moving. They can sometimes differ from spot prices, leaving sellers and buyers with unanticipated gains or losses.

The afternoon gold benchmark at $1769.15 was established on October 29th, which is $1.95 less than the lowest spot market level that day. Refinitiv Eikon data shows this — making sellers lose money, and giving buyers bargains.

Globally, jewellery, miner, trader, and manufacturer jewellers and miners buy and sell gold valued at hundreds of millions of USD every day at the benchmark auctions. Supply contracts in the entire industry also include benchmark prices.

There have been very few large divergences, but they are due to a recent inability of banks to feed customer orders into auctions in order to add/remove buy or sell orders in order to keep the prices close to the spot market.

Many feared that regulators might see this as price manipulation after scandals involving the fixation of benchmarks like LIBOR.

Fixed Income, Currencies, and Commodities markets Standards Board (FMSB), a consortium of asset managers, large banks and others, has created a standard that explains when banks can change auction orders.

The text says that the Standard was created to clarify the situation. It is meant to raise the number of auction bids submitted by LBMA (benchmark), and increase the quality of price discovery resulting.

FMSB has no regulatory authority and stated that it intended to publish final standards in December.

The gold https://www.reuters.com/article/us-gold-benchmark-idUSKBN18K2H6 and silver https://www.reuters.com/article/us-silver-benchmark-exclusive-idUSKBN17T1XS benchmarks suffered numerous large divergences around 2016 and 2017, when as few as ten firms — nine of them banks — participated in the gold auctions and seven — all banks — took part in the silver auctions.

There are now 18 people who funnel orders to the silver auctions. Eight of these participants aren’t banks, but trading companies. The silver auctions are attended by fifteen firms, of which eight are banks.

A bank executive involved in benchmarks stated that “I don’t think it’s much of a problem anymore.” He said that his bank could trade the auctions with more flexibility and other banks may also do so, which would improve liquidity.

ICE Benchmark Administration, a division of Intercontinental Exchange (NYSE), manages the silver and gold benchmarks on behalf of London Bullion Market Association.

They stated that the LBMA, IBA, and all market participants were satisfied with current liquidity levels to enable precious metals auctions to continue functioning well.

The participants in the gold benchmark are Bank of China, Bank of Communications, Citibank, Coins ‘N Things, DRW Investments, ED&F Man, Goldman Sachs (NYSE:), HSBC, Industrial and Commercial Bank of China (ICBC), Jane Street, JPMorgan (NYSE:), Koch Supply and Trading, Koch Commodities Europe, Marex Spectron, Morgan Stanley (NYSE:), Standard Chartered Bank (OTC) StoneX and TD Bank

Marex indicated that although it was happy with its liquidity levels, they would be open to any increases. Other commentators declined to respond or refused to make comments.

FMSB guidelines apply also to palladium and platinum price benchmarks, which are established in daily auctions held by London Metal Exchange. LME stated that it was satisfied with the benchmarks, but appreciated the FMSB standards.