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"Global Mining Descisions in Your Palms"
Price discovery is the cornerstone of any market, and the gold market is no exception. Gold not only has a spot price but also regional prices and the well-recognized LBMA Gold Price, a key benchmark used globally. The LBMA Gold Price is central to the global gold market, while other regional prices serve their respective local markets.
The wholesale gold trading landscape is vast, complex, and constantly evolving. The three primary gold trading hubs are the London OTC market, the US futures market, and the Shanghai Gold Exchange (SGE). These centers alone account for more than 90% of global trading volumes, with smaller secondary markets complementing these hubs around the world.
The London OTC market, historically the heart of global gold trading, still accounts for around 70% of global notional trading volumes. It draws participants from around the globe and sets the twice-daily global reference for gold prices via the LBMA Gold Price. What makes London unique is its trade of 400-ounce ‘Good Delivery’ bars, stored in secure vaults overseen by the London Precious Metals Clearing Limited (LPMCL) and the Bank of England. London is often referred to as the ‘terminal market’ due to its unique vaulting infrastructure, its chain of custody protocols, and the large stocks of gold it holds. Additionally, the city benefits from bridging Asian and US trading hours and from being a major global financial hub.
However, the London market has seen its share of global trading volumes decline. Since 2015, after banks ceased submitting Gold Forward Offered Rates (GOFO), the market has experienced increasing fragmentation. The introduction of LMEprecious by the World Gold Council and the London Metal Exchange is an effort to modernize and streamline trading in response to these challenges.
While London still plays a leading role in the physical gold market, the COMEX derivatives exchange, operated by CME Group, has become a key player in price discovery. Trading on COMEX revolves around the ‘active month’ contract, which serves as a proxy for the spot price. Although only a small number of contracts result in physical delivery into COMEX vaults, the market is strongly linked to the physical markets via the Exchange for Physical (EFP) mechanism. A notable shift is the growing volume of COMEX trades during Asian market hours, showing COMEX’s increasing integration with Asia’s market growth.
Furthermore, the Shanghai Gold Exchange (SGE) is the world’s largest purely physical spot gold exchange. Since its establishment in 2002 under the oversight of the People’s Bank of China, SGE has mirrored China’s rise as a key player in the global gold market. In 2016, SGE introduced the Shanghai Gold Price benchmark, marking China’s transition into a price-setting role and helping to internationalize the Chinese yuan (RMB). The SGE’s spot and deferred contracts are complemented by an active futures market on the Shanghai Futures Exchange (SHFE), though the two exchanges are not directly linked.
Smaller but significant markets include Dubai, India, Japan, Singapore, and Hong Kong. While these markets offer a range of spot trading and listed contracts, they lack the liquidity of the larger venues. However, they play important roles in serving local demand and acting as regional trading hubs. Hong Kong, for example, acts as a gateway to the Chinese market, while Singapore is positioning itself as a key trading center in the ASEAN region.
Also, gold has been on a bullish run recently, benefiting from a mix of economic and geopolitical factors. Following the Federal Reserve’s 50 basis point interest rate cut last Wednesday, gold prices (XAU/USD) surged, pushing past the $2,600 mark to hit new highs during Friday’s European session. This rally has been fueled by declining US Treasury yields, persistent concerns over economic slowdowns in the US and China, and geopolitical tensions in the Middle East.
Although upbeat US macroeconomic data, including lower weekly jobless claims and a rise in the Philadelphia Fed’s manufacturing index, momentarily buoyed the US dollar, the Fed’s forecast for future rate cuts continued to support gold. With the Fed projecting interest rates to decline to 3.4% by 2025 and further to 2.9% by 2026, gold’s safe-haven appeal remains strong. Adding to this momentum, several Asian central banks and Russia have increased their gold reserves to reduce reliance on the US dollar, further fueling bullish sentiment in the market.
The Federal Reserve’s aggressive interest rate cut triggered a sustained rise in gold prices over the week. Gold hit all-time highs twice on Friday, peaking at $2,625.61 per ounce and closing the day just below that at $2,622.17 per ounce.
Looking ahead, gold prices are forecasted to remain stable around the $2,600 per ounce mark over the next week, with only slight fluctuations expected. Given the economic backdrop and ongoing geopolitical tensions, the safe-haven appeal of gold is likely to remain strong, keeping prices relatively buoyant in the near term.