Bank of China, First Chinese Bank to Join LBMA Gold Price Auction
Next week the Bank of China will be participating in gold’s benchmark electronic auction process, the London Bullion Market Association (LBMA) announced Tuesday.
According to the association’s press release, the Bank of China will become the eighth institution participating in the new electronic-based LBMA Gold Price, the new benchmark that was established in April to replace the almost century gold London Gold Fix.
The Bank of China will join the ranks of: Barclays Bank, Goldman Sachs International, HSBC Bank USA NA, JP Morgan, Societe Generale, The Bank of Nova Scotia - ScotiaMocatta and UBS.
“As one of the LBMA’s founding members, it is appropriate that they should be the first Chinese participant,” said Ruth Crowell, chief executive of the LBMA, in a press release.
“Although being the world’s largest gold producer and consumer, China has never played a major role in the global gold fixing,” added Yu Sun, general manager, Bank of China London Branch & CEO, Bank of China (UK) Limited. Bank of China’s direct participation in the gold auction would reinforce the connection between the Chinese domestic market and overseas markets, make the international gold price better reflect the supply and demand in China, and help to promote the internationalization of the Chinese gold market.”
China has played an important role in the gold market, especially since 2013 when the biggest drop in gold prices unleased unprecedented demand in Asia. Although physical demand has dropped since its peak in 2014, analysts said that it will continue to grow as wealth throughout the country rises.
Looking at the first quarter of 2015, consumer demand for the yellow metal in China was 272.9 tonnes, down 7% from 293.8 tonnes seen in the first quarter of 2015; however, consumption was well above the five-year average of 231.9 tonnes.
Ole Hansen, head of commodity strategy at Saxo Bank, said this was an important step for China that will help the nation solidify its global importance in the gold market. But he added that people should not start underestimating gold’s importance in London.
“It was an important step to have a representative from Asian markets,” he said. “But the Bank of China joining the new fix sends a signal that London is still an important hub.”
Hansen added that in general another member participating in the gold fixing process should help the markets transparency and improve market liquidity.
The Bank of China’s inclusion in the LBMA London Gold Price, could just be the first of more announcements.
Finbarr Hutcheson, president of ICE subsidiary, ICE Benchmark Administration (IBA), the company tasked with managing the new gold benchmark, said at the International Derivatives Expo in London last week that a total of three banks are expected to join the online auction “very soon.” |
