Exclusive: London Metal Exchange to publish gold, silver reference prices within weeks

LONDON (Reuters) - The London Metal Exchange (LME) will start publishing gold and silver reference prices, the exchange told Reuters on Tuesday, potentially challenging the dominance of benchmarks administered by Intercontinental Exchange (ICE).

Men walk past the London Metal Exchange (LME) in London, July 22, 2011. REUTERS/Paul Hackett

Precious metals producers and consumers around the world use benchmarks owned by the London Bullion Market Association to price contracts.

Intercontinental Exchange (ICE) sets the LBMA Gold Price twice a day via an electronic auction, and was selected this month to administer the LBMA Silver Price, defeating a rival bid by the LME.

The LME will publish alternative prices based on trading of its gold and silver futures, launched earlier this month.

“Following a number of requests from key precious metals market participants, the LME intends to publish intraday reference prices for its gold and silver contracts,” the LME told Reuters.

The LME has been monitoring the prices, created using volume-weighted averages of prices over one minute, to make sure they reliably match the wider market and will make them public within weeks, a source close to the matter said.

It is likely to publish the prices to coincide with the LBMA benchmark auctions, held for gold at 10:30 am and 3 pm London time and for silver at midday, the source added.

They will be free to use, the source added. ICE charges a license fee to embed the LBMA gold price into contracts.

ICE and the LBMA declined to comment.

“If the LME can produce parallel prices that are free to air, a lot of people have said they would like to use these instead,” said the source.

A source at a bank that is backing the LME’s precious metals contracts saw benchmarking shifting its way to the exchange over time if volumes were robust.

“People will see there is liquidity on that platform and they can get their benchmark there.”

Around 60,000 ounces on average are transacted through each LBMA gold benchmark auction, which typically lasts only a few minutes.

By contrast, an average 135,000 ounces a day - or 120 ounces a minute - traded using the LME’s spot gold contract during the two weeks after its launch.

The LME launched its LMEprecious gold and silver contracts on July 10 with backers including banks Goldman Sachs and Morgan Stanley, who committed to provide liquidity as part of a 50:50 revenue-sharing deal with the LME.

However, the two largest bullion trading banks, HSBC and JPMorgan, have not engaged with the LME’s contracts.

Reporting by Peter Hobson; additional reporting by Pratima Desai; Editing by Veronica Brown and Susan Thomas