Gold trading activity on electronic foreign exchange broker EBS has jumped 30 percent this year, as banks and investors increasingly use the surging commodity as an alternative to currencies, an EBS executive said on Thursday.
A five-year rally that this week lifted the metal to near $520 an ounce, and the more subdued performances in equities and bonds recently, also have attracted many big professional traders to the precious metal, helping spur the growth.
"Foreign exchange traders tend to trade in different assets for different reasons. But one thing in gold that is parallel to FX is when you see volatility and increased liquidity, it gives them a great avenue to speculate," Fulinda Malone-Rouse, EBS' global business development manager, said in an interview.
"This is a 24-year high in gold, and when you start looking to new ground, that's naturally going to create activity," she told Reuters.
The gain in EBS' gold trading in 2005 follows a 24-percent rise in volume on the electronic platform last year, EBS said.
Average spot gold turnover on EBS has raced up to around 700,000 ounces per day, which has a daily value of about $360 million in today's prices, up from 500,000 ounces six months ago.
EBS also offers spot silver, where activity is up to 6 million to 7 million ounces daily, or a value of $52 million-$62 million, from about 4 million ounces per day earlier in 2005.
The price of gold got as high as $519.80 an ounce by midday in New York on Thursday - its loftiest level since April 1981. Silver reached an 18-year peak of $8.89 an ounce.
EBS launched its spot metals trading in July 2000 and it bills itself as the top electronic metals broker through the "loco" London bullion market.
According to the London Bullion Market Association, an average of 18.4 million ounces of gold worth $8.7 billion was being cleared daily in spot gold as of October. For silver, it was 124.7 million ounces daily, or almost $1 billion.
"It's also coming from spillover from the equities, oil and currencies" where some traders feel they are not earning sufficient returns, Malone-Rouse said.
As one example, some traders have recently fled weakness in the Japanese yen by selling that currency and buying precious metals, further propelling gold's meteoric rise.
"More hedge funds are looking at gold now as something they can go into and make some good money," she added.
EBS has extended its prime service EBS Prime to hedge funds, fund managers and commodity trading advisors, allowing them to trade currencies and metals directly in the bank-to-bank market.
Malone-Rouse said gold traded on EBS can be hedged against New York gold futures, which is useful for the large players.
Gold traded on EBS is spot 995 fine metal, or "good delivery" with a purity of at least 995 parts per thousand, with minimum tradable amounts of 1,000 ounces for gold, incremented in units of 1,000 ounces.
Spot unallocated 999 silver can be traded in 50,000 ounce lots, incremented in units of 50,000 ounces. EBS' daily turnover of currencies and metals combined is around $120 billion, it said.
The electronic platform is backed by some of the world's largest FX banks, including Citigroup and UBS.