(Kitco News) – The UK’s gold market – the largest in the world with $35 trillion in annual trading – should reestablish futures trading to leverage its dominant position in physical bullion, according to incoming London Bullion Market Association (LBMA) chair Peter Zoellner.
“I think it makes sense that the gold market can trade on different venues,” Zoellner said in an interview with the Financial Times. “Sometimes people start something a bit too early. Maybe we are in a different situation.”
The new LBMA chair is calling for the revival of gold futures trading in the UK, despite the failure of earlier attempts to establish derivatives contracts for the yellow metal in the world’s physical gold trading capital. The London Metal Exchange launched a gold futures contract in 2017, but wound it down in 2022 due to low volumes, while an earlier attempt called the London Gold Futures Market operated from 1982 to 1985 but also suffered from anemic trading activity.
The remarks come against the backdrop of growing unease about the dominant position of U.S. exchanges, given the uncertainty surrounding President Trump’s ever-changing tariff policies.
The CME Group’s Comex has the world’s most liquid gold futures contract, with nearly 27 million ounces worth $110.7 billion traded daily in New York, with China’s Shanghai Gold Exchange in second place.
Zoellner suggested that previous efforts to launch gold futures contracts in London may have been premature, but added that the global market would benefit from having “two or three places with decent liquidity.” He acknowledged that it would ultimately be up to the exchanges to structure and list a gold futures contract.
The LBMA represents bullion trading banks, and London bullion deals are conducted mainly through bilateral over-the-counter (OTC) physical transactions. The LBMA plays a central role in determining what gold is ‘good delivery’ and therefore eligible to be delivered to London members’ vaults.
Zoellner said the association is also considering sharing more of its pricing data, including for real-time prices and for forward contracts.
“Developing a strong benchmark for a forward price in the gold market” would help to bring greater “transparency” to gold trading, he said. “The LBMA has an objective to make sure that the market infrastructure is developing in a way which serves all market participants.”
The LBMA already collects data on forward contract prices in the London market from its members, and up until 2013, it published a forward curve for gold offered rates known as the ‘Gofo.’ It also oversees a twice-daily auction that sets the widely-used ‘Loco London’ benchmark price.
Zoellner also said he expects central bank gold purchases to continue to drive prices higher, as they have few alternatives. He added that concerns about sovereign debt and the trade war are also important factors in the gold rally.
“We have a situation where the fiscal policy in very big jurisdictions is sort of concerning. The public debt has exploded,” he said. “We are in a shift globally in terms of the perception of political alliances, and trade policy, fiscal and monetary policy. And that might lead into price movement.”
Zoellner also pushed back against the view that gold is archaic and outdated, saying the market still values safety and trustworthiness over convenience.
“Of course, if you look at technological innovation in other markets, you might come to a view that the gold market still is behind, and that might be true to some extent,” he said. “But the advantages [of the current system] are bigger than innovative steps.”
Gold saw another sharp selloff overnight, dropping from $4,125 per ounce all the way to a session-low $4,004.28 around 8 pm EDT before rising as high as $4,160 by 3 am.
Spot gold last traded at $4,054.10 for a loss of 1.73% on the daily chart.
