With the launch in mid-August of a new system to arrive at the price for silver, precious metals investors are dealing with the first in a series of changes in how the market prices of silver, gold, platinum and palladium are reached.
More change is coming, since the other three metals have yet to go through the process, but what’s happened so far is this: Concerns about price fixing after everything from LIBOR to currency were found to have been manipulated led to accusations about the gold and silver markets, and in January of this year Germany’s financial regulator Bafin said that the manipulation of precious metals prices was worse than that occurring with LIBOR.
Deutsche Bank was interviewed by Bafin on the matter before the end of 2013, and in January the bank announced that it would exit the commodities business and abandon its positions in the processes of fixing gold and silver prices. Since Deutsche Bank was one of only three involved in the 117-year-old process of setting the price of silver – the other two were HSBC and Bank of Nova Scotia – that meant a new method had to be found before Deutsche Bank departed the scene.
In August, that new method launched. An electronic, auction-based mechanism has taken the place of the traditional conference call among the three banks that had determined how silver would be priced since the time of Queen Victoria. Run by CME Group Inc. and Thomson Reuters Corp., the new system uses electronically entered orders proposing a starting price; if buy and sell orders don’t match up, an algorithm will determine the price to be used for the next bidding round. CME had said in a report when the system went live that each round should take 30 seconds or less, and that participants will be able to view bid and offer volumes, as well as total volumes traded once the price is set.
This post was published at TruthinGold on August 28, 2014.