LME in talks on launch of precious metals derivatives

The London Metal Exchange (LME) is in talks with the gold industry with a view to launching precious metals derivatives, LME Chief Executive Garry Jones said on Thursday. "There is no listed derivative in precious metals in London. A number of people have said we would like to have this; we really want to be able to clear gold, silver and other precious metals," he told reporters in Mumbai.
"As an exchange...we want to partner with the market." Talks would include the London Bullion Market Association (LMBA) and the World Gold Council, he said. "We have the technology to do it. We're in discussions right now. But if we do it, it would be for launch next year." Jones did not provide a specific timeline and said it would depend on the regulatory environment.
Earlier this year gold industry body the LBMA commissioned consultancy EY to review the London bullion market and recommend further developments, including the possibility of creating an exchange for gold trading. Its chief executive told Reuters in June however that the prospect of higher costs was dampening the appeal of an exchange-traded model to participants.
Commenting on Jones's remarks, a spokesman for the LBMA said on Thursday: "We're always happy to discuss developments in the bullion market, but at this stage we have not had any formal conversations on this point." The LME has previously offered gold and silver contacts, most recently in the 1980s.
It stopped providing forward curves late last year, when increased regulatory scrutiny of the way banks provide data to determine financial benchmarks made bullion market makers less inclined to participate in price-setting processes. Traders in London said the launch of a new derivatives contract in the city may be difficult. "It is hard to believe there is demand for another gold derivatives contract," one market participant said. "There is not enough liquidity in certain parts of the market as it is, so why would you want to spread it any thinner? The market has traded Comex for more than 20 years and it remains the predominant gold futures contract." LME, part of Hong Kong Exchanges and Clearing Ltd, is currently holding roadshows promoting the benefits of hedging to the Indian market.