(Kitco News) - Following Wednesday's news that the London silver fix is set for the chopping block in August, the question now is, could gold be next? CPM's Jeff Christian says "it's a possibility."
However, before looking at the London gold fix, Christian said, in an interview with Kitco News's Daniela Cambone, regulators and organizations like the London Metals Exchange, London Bullion Market Association will have to scramble to fill the potential void in the silver market.
“There are all kinds of people who are now jockeying for position,” he said. “The LME said ‘well, maybe we can do something,’ but the LME has no volume; most of the volume is in Comex. The LBMA might try to go to some sort of alternative electronic thing but they haven’t made any move in that direction.
“They are really starting from scratch way too late in the game and I don’ know if they have the capacity managerially to move quickly enough to do something,” he added.
While some analysts have pointed out that the silver and gold fixes are archaic pricing mechanisms, Christian said that the fixing price is still relevant to today’s market. He added that although the silver fix is managed by three banks, Deutsche Bank, HSBC and Bank of Nova Scotia, hundreds of companies participate in the process daily, feeding each other quotes at where to buy and sell the metal.
“That number is then used in a lot of contracts,” he said. “This is a number at which a lot of metal was bought and sold every day.”
Although there is still time to find a solution, Christian said that a lot of contracts will now have to be renegotiated between trading companies and producers, smelters, refiners and industrial users, which could potentially cause problems.
“One of the problems is that you are now moving to an even more opaque, unilateral, asymmetrical market, where people will be buying and selling metal principal-to-principal in a less informed market,” he said.
Christian added that because most of the trading activity is done through the CME Group’s Comex exchange, companies might start basing their prices on that exchange.