The Charade Continues - London Gold and Silver Markets set for even more paper trading
By GCRU Gold News on Tuesday, August 9 2016, 23:44 - Permalink
Today the London Metal Exchange (LME) and the World Gold Council (WGC) jointly announced (here and here) the launch next year of standardised gold and silver spot and futures contracts which will trade on the LME’s electronic platform LMESelect, will clear on the LME central clearing platform LME Clear, and that will be settled ‘loco London’. Together these new products will be known as ‘LMEprecious’ and will launch in the first half of 2017.
However, although these contracts are described by the LME as delivery type ‘Physical’, settlement of trades on these contracts merely consists of unallocated gold or silver being transferred between LME Clear (LMEC) clearing accounts held at London Precious Metals Clearing Limited (LPMCL) member banks (i.e. paper trading via LPMCL’s AURUM clearing system).
According to the LBMA, ‘Loco London’ “refers to gold and silver bullion that is physically held in London“, however, given the secrecy which surrounding trading data in the London gold and silver markets, and the lack of publication by any bank about the proportion of unallocated client balances in gold or silver that it maintains versus the physical gold or silver holdings that it maintains, this ‘loco London‘ term appears to have been abused beyond any reasonable definition, and now predominantly refers to debit and credit entries in the virtual accounting systems of London based bullion banks. Nor, in my opinion, will the LME contracts change any of this. One would therefore be forgiven in thinking that the real underlying inventories of gold and silver in the London market and their associated inverted pyramid unallocated account positions are too ‘precious’ to divulge to the market. The Bank of England is undoubtedly licking its chops to the continued opacity of the market.