Gold elite challenged by base metals bourse on market future

Bloomberg

The world’s biggest industrial metals exchange is taking on the most powerful players in the gold market with the launch on Monday of its
first futures contract for the commodity since the middle of the 1980s.
The London Metal Exchange and its partners aim to grab a piece of the action in a city where almost half the world’s gold changes hands. At stake are rival visions of how best to run the market, pitching the LME, Goldman Sachs Group Inc. and Morgan Stanley on one side and the London Bullion Market Association representing some of the biggest trading firms on the other.
Three years in the making, the gold contract, launched alongside another for silver, aims to draw investors from the off-exchange deals that currently dominate the city’s $5 trillion-a-year market.
“The gestation period has been longer than that of an elephant, but the baby is finally here,” Jeffrey Rhodes, founder of Rhodes Precious Metals Consultancy DMCC with more than 30 years
in the industry, said from Dubai. “They’ve been coveting this for years and having waited so long, I think they’ll make it work.”
The LME, World Gold Council — representing miners — and partner banks hope to capitalize on regulators’ push for more scrutiny by allowing investors to trade contracts on an exchange where transactions are tracked and risks managed. Their LMEprecious venture including Goldman, Morgan Stanley, Natixis SA, ICBC Standard Bank Plc, Societe Generale SA and OSTC Ltd. will centrally clear daily, monthly and quarterly futures contracts using LME Clear.

NEEDS MOMENTUM
The group will need to overcome inertia among those wary of moving to a new venue for pricing precious metals. Adding to that, the bullion association, which represents firms trading in the
market including HSBC Holdings Plc, JPMorgan Chase & Co. and UBS AG, is already revamping the current go-to system to improve over-the-counter transactions.
Ross Norman, chief executive officer of Sharps Pixley Ltd., a precious-metals dealer in London, plans to keep using the LBMA gold auction rather than any LME equivalent.
“I don’t think the market needs yet another trading venue, what we need is consolidation,” Norman said by phone. “I remain skeptical whether this will get the momentum
it needs.”