Intercontinental Exchange Inc to start gold futures to help clear London daily auction

The contract, subject to regulatory approval, will be for bullion held in London and traded on ICE Futures US in New York

Gulf News

Singapore: Intercontinental Exchange Inc., which runs the daily London gold auction, will start a futures contract for the metal in the US in February, jumping the gun on the London Metal Exchange which is also working on a London-focused product.

The contract, subject to regulatory approval, will be for bullion held in London and traded on ICE Futures US in New York. Each contract will be for 100 troy ounces of metal and will be used to clear the London gold auction, starting in March. The London Metal Exchange is scheduled to begin its own futures contracts in the first half of next year.

The move was announced as the London Bullion Market Association, which represents the city’s gold traders, meets in Singapore to discuss ways to modernise a market that clears more than $5 trillion (Dh18.36 trillion) of the precious metal a year. Gold futures also change hands in New York on the CME Group Inc.’s Comex exchange. The London gold auction is held twice a day and has 13 authorised participants, up from four last year.

“What we are doing now is really focusing on the market that we already operate,”

Finbarr Hutcheson, president of the ICE Benchmark Administration, which runs the London gold auction, said by phone from London. “This solution serves the need of our customers and the demand to develop and grow that market.”

More participants

ICE said in a statement the existing liquidity and participation in the daily London gold auction will help kick-start the contract. It said clearing would make it easier for more participants to join the auction as they wouldn’t need a credit line with every other member.

For a timeline of how London’s gold market has evolved since 1676, click here.

Last year, ICE started administering the electronic auction that replaced the century-old London gold fixing, a ritual that was taking place by phone. The auction is used by mining companies, refiners and central banks to trade large quantities of gold. It’s also a point of reference for derivative contracts.

“Central clearing during the auction will allow the number of diverse direct participants to continue to grow,” Ruth Crowell, chief executive officer of the LBMA, said in the statement. “Central clearing is something that we have hoped to see.”

The London Bullion Market Association, the Singapore Bullion Market Association and the ICE Benchmark Administration are studying the feasibility of starting an LBMA pre-AM price at 2pm Singapore time to add to the existing AM and PM prices. The move would enhance price discovery and bridge the gap between the close of the US market and the opening of London, according to the SBMA.