May be bullish, LBMA conference hears. But it's more gold price gloom first...
LBMA delegates at the 2015 gold conference in Vienna this morning gave their price forecasts for 1 year hence, writes Adrian Ash of BullionVault.
We don't yet know the average guess of the 690 attendees from 290 different companies across the precious metals world, meeting here at the London Bullion Market Association's annual bash. The conference's aggregate gold price forecast won't be revealed until Tuesday's closing session.
But the tone from the first of LBMA 2015's forty-nine expert speakers is, so far, bearish. Wearily so. Fatigue is really hurting, especially straight after the gloom of London's LME Week for base metals.
That might prove bullish for precious metals of course – because all markets, not just gold, silver and the platinum-group metals, only turn when the fewest people expect it, something the chit-chat at Sunday night's conference reception drinks kept coming back to.
But on the podium, there's more pain to come first is the consensus today. And not only through lower prices.
First up, regulatory change threatens liquidity in the gold and other metals markets, noted LBMA chairman Grant Angwin (executive vice-president of Japanese refiners Asahi's US operations) – such as the Basel banking rules proposal for a 85% haircut on precious metals when counted as part of a bank's assets. That risks forcing banks out of gold.
So the LBMA itself is leading the market's response, moving from last year's whirlwind replacement of the century-old Fixing benchmarks with new, independently-run electronic auctions to invite a wholesale strategic review of how the professional bullion market works.
When I say wholesale, the scope for change is apparently unlimited. The process now begun by the Association's executive team, said Jonathan Spall (ex-Barclays, now advising the LBMA with his G-Cubed consultancy), has seen a Request for Information sent to potential partners which equates to asking "What would the ideal market look like if you built it from scratch?"
Well, it might look a lot like what the world has already developed – over time and through practice – after centuries of trading and capital flow, rather than a roadmap pitched within 5 weeks of an RFI. Not least to the assembled delegates from miners, refiners, shippers, vaults, dealers, traders, investors and end-users attending the LBMA conference here in Vienna.
But regulatory scrutiny – plus the risk of further big players joining market-makers Mitsui in quitting the market for want of "profitability" after the last 4 years of price falls – makes now the perfect moment for reviewing and re-building the whole market, so it can continue to serve producers and consumers more efficiently, and with the confidence lost over the Barclays Fixing scandal.
Indeed, two of the proposals being sent back to the LBMA next month (November 17th) in response to its RFI will explicitly look at using a block chain to record deals, breaking out of 'owned' or corporately-served databases in the way that Bitcoin acts as electronic cash free from state-issuance or bank processing.
Change will perhaps be greatest for the LBMA itself, with CEO Ruth Crowell telling the conference today that its strategic review foresees a new trade association for the four metals (gold, silver, platinum and palladium) plus a new financial services provider for market participants.
World Bullion Market Association anyone?
Change has already hit other areas of the gold market – notably central-bank use of bullion as a key reserve, noted Peter Mooslechner of Oesterreichische Nationalbank (OeNB), welcoming the LBMA conference to Vienna at the top of the day. Because where small, open economies like Austria needed large gold reserves during the Bretton Woods and then floating exchange-rate worlds of 1950-2000, adopting the Euro "fundamentally changed the role of gold" for Euro member central banks, he said.
More on that later from the Central Bank session. Meantime, the speakers so far don't see much change in the downtrend in prices. Offering 3 ways to put a fair value on gold (famously tough as it pays no coupon or dividend), ex-HSBC Wealth manager Charles Morris (now focused on gold, miners and Bitcoin in the Atlas Pulse Report) said:
• Gold vs. commodities: Now 62% over-valued across the long term average
• Gold vs bonds (only this one's issued by God): Now 30% above its average
• Gold vs cost of living (CPI index): Now 34% above average.
All told, that says gold should be nearer $800 per ounce, Morris concludes – right around the 2008 lows when Lehman Brothers crashed and the world woke up to needing gold as what other panellists agreed is "catastrophe insurance". That bull market in gold, however, brought what several also called "tourists" into the market, many of whom remain.
Gold ETFs for instance – an innovation enabling US fund managers in particular to access cash-gold prices rather than buying mining stocks a decade ago – still hold 1,600 tonnes. The market needs to find 10 tonnes of new buying each day already just to eat what's now coming out of the ground from mining. What would it take to encourage those investors to buy more again? This morning's session brought lots of gloomy views on the world economy, and the disaster in waiting still building thanks to central-bank stimulus.
But the view for gold, silver and especially platinum prices here at LBMA 2015 so far is gloomier still. Which might be bullish. In time.