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Report: London OTC Gold Market Nearly As Large As Comex

Kitco News

(Kitco News-  Average daily gold turnover was $36.9 billion and 30.2 million ounces in the London over-the-counter market during the last week, the London Bullion Market Association reported Tuesday upon releasing a new report aimed at increasing transparency in the market.

Average daily silver volume during this period was $5.2 billion and 359.3 million ounces, the report said.

Some analysts pointed out that the data show that for one week anyway, the New York-based Comex gold market was slightly larger than the London market, but both far exceeded the size of the world’s third-largest market in Shanghai.

London is one of the world’s major gold-trading centers, but transactions tend to be over the counter (OTC) between banks, brokers and traders. There has been a call for greater transparency in recent years, particularly amid charges of market manipulation. So beginning this week, the LBMA is releasing data on the size of the gold market for the previous week on Tuesdays. The LBMA said it will move to daily reports in three months.

“This is an exciting moment for transparency in the global OTC market, with the next chapter to include publication of data for platinum and palladium,” said Ruth Crowell, chief executive officer of the LBMA.

The new data represent all LBMA market makers’ and some full members’ share of the loco London and loco Zurich OTC markets, the gold organization reported.

The significance of the new data “should not be understated,” said Matthew Turner, associate director for commodities and economics strategy with Macquarie Capital Europe Ltd. His written analysis accompanied the LBMA report.

“For the first time in the long history of the London gold market, its size is not guesswork but a reliable measurement, a notable achievement given the variety of participants and products that it encompasses,” Turner said.

“But this is just the beginning. After all, a snapshot can only tell us so much. The real benefit of data sees how it moves over time, especially once we have daily publication in 1Q 2019 and data on the platinum and palladium markets.”

The report showed that for the week, members traded 95 million ounces of gold in spot contracts, 46.5 million ounces in swaps and forward contracts, 4.1 million ounces in options and 5.4 million ounces in leases, loans and deposits. Trading in silver totaled 1.1 billion ounces in spot contracts, 651.2 million ounces in swaps and forwards, 36.7 million ounces in options and 43.7 million ounces in leases, loans and deposits.

“How big is the LBMA members’ London OTC trading compared to other gold markets? Pretty big,” said Turner.

Still, CME Group’s U.S.-based Comex futures and options market was 13% bigger at around 34 million gold ounces a day, Turner pointed out. However, he cautioned that the figures will vary and it will take some time to make clear where the most volume occurs. A certain amount of volatility occurs in both markets. Still, Turner pointed out that both markets are far larger than the next biggest one -- China’s Shanghai Futures Exchange, which averaged around 2.6 million ounces per day over the same time.

In the case of silver, Comex daily trading volume was 552 million ounces, compared to LBMA members’ volume of 359.3 million, Turner pointed out. The Shanghai exchange was third at around 62 million ounces.

Turner provided data to show a comparison of the size of the LBMA market to other outside markets. The $36.9 billion-per-day gold market over the last week was “in the same ballpark” as 2017 average daily trading volume of $44 billion in U.K. government bonds, known as gilts. The $36.9 billion gold market exceeded the $22 billion daily average for London Metal Exchange copper in 2017, although it was short of the $50 billion daily average for the so-called “big five” LME base metals (copper, aluminum, nickel and tin).

“FX [foreign-exchange] trading volumes are in a league of their own,” Turner added. “The BIS’s [Bank of International Settlements’] triennial survey shows the daily turnover of USD/EUR, for instance, is some $1,172bn/day.”

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