LMEprecious – What is it?

Posted November 11th 2016

LMEprecious is a new initiative created by the London Metal Exchange (LME), the World Gold Council and a group of leading industry players, which will launch a new set of precious metal products and broaden the offering for the precious metals community.

Set to launch in the first half of 2017, LMEprecious will comprise spot, daily and monthly futures for gold and silver with all trading to be centrally cleared on LME Clear. Developed in response to a demand from the market it will deliver greater choice for market participants, modernising both the gold and silver market to reflect the current need of global players.

The LME’s Head of Business Development has advised this will not render the London Bullion Market Association (LMBA) gold and silver price benchmarks obsolete. He poses the opinion that both markets can work alongside each other, saying ‘I don’t think we should be scared about introducing new benchmarks to the market because of fragmentation. This is a hugely vibrant market and the market will ultimately arbitrage out of the difference’.

According to the LME wesite, key features of the gold and silver contracts will be:

  • A highly flexible date structure – Gold and silver can be traded on a daily basis, from T+1 (TOM), T+2 (SPOT), through to T+25. LMEprecious also offers standardised monthly futures contracts, out to five years.
  • Tradeable carries between all future dates – Including the crucial TOM/NEXT carry trade for inventory management, and monthly roll trades for funds and other investors.
  • Displayed electronic liquidity from day one – The LME’s market-making partners will deliver deep and tight executable prices across the gold and silver forward curves
  • Loco London delivery – Gold and silver bullion physically held in London allows for the efficient settlement between LMEprecious and OTC market deliveries.
  • Optimised capital management – LMEprecious contracts are cleared by LME Clear, the LME’s custom-built metals CCP, with scope for material capital savings.
  • Flexible booking model – LMEprecious contracts can be traded electronically via LMEselect, and through the 24-hour telephone market.

The LME has not traded precious metals since the 1990’s but this is a step in the right direction for them, with plans to add platinum and palladium in the latter half of 2017. Aram Shishmanian, CEO of the World Gold Council (WGC), commented, ‘Over time this will be viewed as a new era for the London gold market. Gold has become a financial asset again – the underlying message is gold needs to be mainstream.’