Odds on, odds off: London gold market seemingly confused on best route forward

With Cheltenham races this week, everyone is in betting mood. It would appear that the cards could be stacked in IntercontinentalExchange's favor, as the operator has come up as an outside favourite to possibly succeed the London Bullion Market Association 'request for proposal' to reform the London gold market.

Why? Because the other two rumored exchanges involved in the process — the London Metal Exchange and CME Group — have already been touted, maybe?

"The market is currently built on hearsay, and rumors," said one source close to the situation.

And guessing. Oh, and lack of interest.

"I have a business to run," said one senior source.

To recap: Late February CME was suggested to be the best suitor to move the over-the-counter market forward, owing to its dominance in listed gold futures and options products.

CME, which operates the world's largest gold exchange by volume in the world, declined to comment on market chatter(opens in a new tab).

Although not officially disclosed, it is widely believed that the five parties in the running for the LBMA RFP are: CME, the LME, ICE, Autilla/Cinnobar and Markit/ABS.

The result of the RFP should create a platform that creates future growth for the London market.

No parties rumored to be involved in the RFP would comment on the matter, or any surrounding market talk, nor would the LBMA.

Ahead of the CME whispers, LME was deemed a front-runner in the proceedings, although that was played down by some camps, as it could be viewed as a submission of the London market to the Chinese. LME is owned by HKEx.

This has been a concern for certain bullion bankers for some time.

However, that was the very reason for the LME being the odds-on favorite, basis the fact China is the world's number one physical gold consumer.

"The Chinese are buying the gold, why would London want the US to dominate the space?" said one banker.

It is worth noting that CME does have exposure to Asian markets, most recently in the form of news that China Construction Bank Corporation has joined the LBMA Silver Price — operated and administered by CME Group/Thomson Reuters — and is the first Chinese participant to become a member of the benchmark pricing mechanism.

CCB will be the sixth price participant, joining HSBC Bank USA NA, JPMorgan Chase Bank, The Bank of Nova Scotia, The Toronto Dominion Bank and UBS AG.

The LBMA is said to currently be engaging in a beauty pageant, in which the five suggested suitors give details of their proposals.

"I'm not so sure of the LME's chances," said one source close to the situation, "personally I think ICE could be the dark horse."

This isn't the first time Platts has heard that rumor, but as previously stated, there are plenty of whispers out there, Chinese or otherwise.

"Whatever the outcome, the next few weeks should start to get busy," said one senior source, suggesting that perhaps the LBMA won't be the author of the final chapter of the London bullion revolution.