Market Update

Increased transparency on gold trading

December 2018 www.gold.org

On 20 November, LBMA published for the

first time weekly trading volume data through
The relevance of gold as a
LBMA-i – its new reporting service, which highly liquid asset
delivers greater transparency and insight into Clarity and transparency in financial markets is beneficial to
the over-the-counter (OTC) gold and silver investors as it increases their level of comfort and their
markets. The report includes weekly trading understanding of an asset. And gold is no exception. The
new regular reporting measures by LBMA-i and its OTC
volumes of the OTC Loco-London and Loco- volume statistic should reduce uncertainty about the gold
Zurich markets. LBMA has announced that market’s liquidity.
this service will provide daily volumes The revised OTC trading volumes for gold are substantially
starting Q1 2019. lower than previous estimates, which were based on best
We believe that this new data, in conjunction available but incomplete information. Even with these
with our revised estimates of global trade downward revisions, gold remains a highly liquid market,
with notional volumes greater than any individual stock,
volumes, will help investors better understand most stock baskets, multiple bond markets – including
the dynamics of the highly liquid gold market. medium- and long-dated US Treasuries – and most non-US
dollar currency pairs (Chart 1).
Overview of LBMA-i Chart 1: Gold trades more than many other financial
LBMA-i was formed in direct response to the LBMA’s markets
demand for a trade reporting service. The service, managed Average daily trading volumes1
by Simplitium, collates reported trade data from LBMA
members and anonymises and aggregates them for German Bunds
publication. Initially, all 13 market makers and 29 reporting Dow Jones (all stocks)
member entities reported volumes; a further 15 are to UK Gilts
begin reporting in early 2019. Reported figures include Euro/yen
volumes from spot, forwards and options trades but do not Goldd2
include more complex derivative structures nor trades done S&P 500 (all stocks)
through certain trading platforms. US Agencies
JGBs
Since its first report, LBMA-i data from 12 November to 14
US$/sterling
December 2018 indicates average daily gold trading
US Treasuries
volumes of 29 million ounces, with a value of US$35.8
billion. 0 100 200 300 400 500
US$bn/day
Stocks Bonds Currencies

1 Based on 1-year average trading volumes as of 14 December 2018, except for

currencies that correspond to full-year 2016 volumes due to data availability.
2 Gold liquidity includes estimates on over-the-counter (OTC) transactions, and
published statistics on futures exchanges, and gold-backed exchange-traded
products. For methodology details visit Goldhub.
Source: BIS; Bloomberg; Germany Finance Agency; Japan Securities Dealers
Association; LBMA; UK Debt Management Office (DMO); World Gold Council

01
Comparing the new Adjusting our global trade
reported volumes volume estimates
The previous estimated volume of the Loco-London OTC As part of our comprehensive offering of data and insight
market was based on two inputs: 1) net trading activity, through Goldhub, we periodically update our overview of
which represents the net volume of Loco-London gold global traded volumes. This includes gold traded through
transfers settled between the five clearing members of the OTC, spot and derivative exchanges, and gold-backed
London Precious Metals Clearing Limited (LPMCL); and 2) ETFs.
an estimated, implied multiplier. The first input came from
We have now adjusted our OTC estimates to reflect
monthly net clearing statistics published by LBMA. The
LBMA-i reported volumes in loco-London and loco-Zurich,
implied multiplier was estimated by looking at the reported
and provide an estimated figure for other OTC not captured
volumes published in the one-off LBMA survey in 2011
by the LBMA-i data set – intended to account for trading by
relative to the value of the net transactions in one quarter.
non-LBMA members or by platforms not included. Based
Using this methodology, for example, we previously on anecdotal evidence, we estimate that other OTC could
estimated that OTC volume in September – the latest data range from 50% to 100% of the volume captured by the
available prior to the release of LBMA-i – was between 94.5 new LBMA-i service.
and 189 million ounces (US$113-US$226 billion).
For example, between 12 November and 14 December
We believe that the significant difference between new 2018, LBMA-i data indicates that members traded 29
reporting data and our earlier estimates can be explained by million ounces (901 tonnes) a day, with a notional value of
a combination of factors linked to changes experienced approximately US$35.8bn a day. We estimate that other
within the gold market over the past decade. The most OTC volume not included in LBMA-i may range between
important are: US$17.8bn and US$35.6bn. This suggests that the total
estimated trading volume on the OTC market ranges
• In 2011, at the time of the previous estimate of liquidity
between US$53bn and US$71bn. It also suggests that OTC
in the OTC gold market based on the LBMA’s one-off
trading represents approximately 50% to 66% of the global
survey, the gold price was at its all-time high and there
daily trading volume in the gold market.
was considerably more interest in gold than there is now.
• The Volker Rule prohibits banks from taking proprietary As we continue to monitor data from LBMA-i over the
risk, so many of the largest traders within banks no coming months we will start to see trends developing.
longer run prop positions. Additionally, many of the Reporting of weekly data – and ultimately daily – may
commodities funds and trading shops that existed 5-10 indicate more volatility in average numbers; it is important
years ago have closed or exited the market. to realise that these first reported figures are representative
• Regulation has driven trades on to exchanges – notably of only a few weeks. We will continue to monitor the data
the Comex Division of the Chicago Mercantile Exchange set as it expands over time, and we may revise the implied
(CME) – that in the past might have been executed OTC. multipliers in order to provide as accurate an estimate of
Many traders now execute business on COMEX, often actual volumes as possible.
directly, thus reducing OTC trading and liquidity.
• Not all OTC traders are members of LBMA and some Table 1: 2018 average daily trading volumes (US$bn)1
banks that used to be part of the association back in 2011 Jan–Oct Nov–Dec

still retain large OTC trading businesses today. This data Total OTC 62.1 62.2
and other data from non-LBMA-member trading Pre-LBMA-i (mid)2 62.1
platforms are not captured in the LBMA-i service. LBMA-i3 35.6
• Finally, not all LBMA members are yet contributing to the Non-LBMA-i (mid) 3
26.7
report. Reported volumes will likely increase from Total commodity/gold exchange4 52.2 43.9
January 2019 when those members’ contributions are Total gold-backed ETFs5 1.3 1.4
added. We believe, however, that this effect may be
Global gold market 115.6 107.5
minimal as the largest trading LBMA members already
1 As of 14 December 2018. For methodology details visit Goldhub.
contribute to the new data set.
2 Estimates based on clearing statistics published by the LBMA.
3 LBMA-i and non-LBMA-i OTC estimates start 12 November 2018.
4 Includes COMEX, SHFE, SGE, LMEprecious, Dubai Gold & Commodities
Exchange, ICE Futures, US Metals, Borsa Istanbul, Bursa Malaysia, Moscow
Exchange, Tokyo Commodity Exchange.
5 A list of physical gold-backed ETFs (and similar) is available in Goldhub.
Source: Bloomberg, COMEX, LBMA, LME, SGE, SHFE, World Gold Council

Market Update | Increased transparency on gold trading 02

About the World Gold Council For more information
The World Gold Council is the market development organisation Please contact:
for the gold industry. Our purpose is to stimulate and sustain
Adam Perlaky
demand for gold, provide industry leadership, and be the global adam.perlaky@gold.org
authority on the gold market. +1 212 317 3824
We develop gold-backed solutions, services and products, based
Juan Carlos Artigas
on authoritative market insight, and we work with a range of Director, Investment Research
partners to put our ideas into action. As a result, we create juancarlos.artigas@gold.org
structural shifts in demand for gold across key market sectors. We +1 212 317 3826
provide insights into the international gold markets, helping people
to understand the wealth preservation qualities of gold and its role Alistair Hewitt
in meeting the social and environmental needs of society. Director, Market Intelligence
alistair.hewitt@gold.org
Based in the UK, with operations in India, the Far East and the US, +44 20 7826 4741
the World Gold Council is an association whose members
comprise the world’s leading gold mining companies. John Reade
Chief Market Strategist
World Gold Council john.reade@gold.org
10 Old Bailey, London EC4M 7NG +44 20 7826 4760
United Kingdom

T +44 20 7826 4700

F +44 20 7826 4799
W www.gold.org

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Market Update | Increased transparency on gold trading 03