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London Banks Want Gold Traded on Exchange

By Nathan Reiff
February 7, 2017 — 2:40 PM EST

In a move to increase transparency, London's gold bullion market is considering revealing the amount of bullion held in vaults within the city for the first time in its history. According to recent reporting by the Financial Times, this move would include gold bullion held by the Bank of England as well as other institutions. The leaders in the debate over transparency shifts are the London Bullion Market Association. Why might London be considering such a shift at this point in time, and what could it mean for the future of gold, both in England and around the world?

Banks Moving Toward Exchange

According to the report, many of the largest banks around the world are pushing for gold to be traded on an exchange, a marked shift from the current bullion market system. The London Bullion Market Association argues that an exchange would work to convince regulators that "banks trading bullion should not have to face more onerous funding requirements." The reason that this shift is necessary, the Association feels, is that London gold is traded directly between sellers and buyers, meaning that essentially no data of those transactions makes it out into the broader analytical world. The Association has estimated that daily gold trades in London may total $26 billion, although that number is difficult to confirm and there are no official data points to cite.

In the time since the 2008 financial crisis, regulators have argued that trading gold on an exchange would provide security and a centralized system for the benefit of the broader economic world in London.

Gold a Major Mover in London

Perhaps one reason that London in particular is at the center of the debate over the gold market is that London sees some of the highest volume of bullion activity of any city on the planet. According to the Financial Times report, London's vaults contain one of the world's largest gold stashes. HSBC, itself a member of the London Bullion Market Association, owns vaults which back the world's largest gold ETF, SPDR Gold Shares. With 400,000 gold bars valued at $150 billion in the vaults of the Bank of England alone, it is common for London vaults to take extreme security measures to ensure the safety of their contents.

The Association believes that moving toward an exchange and documenting the transactions of gold bullion in the city will provide greater transparency. How it might affect the market and the gold bullion prices and trade levels in particular is a bit more difficult to say. If London moves to trade bullion through an exchange, will other cities or countries follow suit? Some analysts believe that this could be the beginning of a much larger trend.

http://www.investopedia.com/news/london-banks-want-gold-traded-exchange/