The London Silver “Fix” Is In Trouble

Clint Siegner Clint Siegner

Clint Siegner

May 1st, 2017 Comments

The London Bullion Market Association (LBMA) is struggling to find new operators to manage the daily silver “fix” price. Thompson-Reuters and the CME Group – which operate the COMEX exchange – are withdrawing from their role in establishing the daily benchmark price.

The process these firms manage was set up in recent years to replace the antiquated and corruption-prone system by which insiders formerly set the daily silver price.

London Bullion Market Association (LBMA) Logo

A handful of bankers used to agree on the price during a private conference call held each day. When damning evidence emerged that bankers often cheated by setting prices to their advantage, the LBMA finally decided to try something different.

The new system is running into challenges of its own. There aren’t enough participants and the daily “fix” price often diverges significantly from “spot” prices being set in futures exchanges such as the COMEX. Firms who rely on the London benchmark often feel disadvantaged and increasingly look to use “spot” prices instead.

Metals investors must continue to wait for anything resembling a free, transparent, and fair mechanism for price discovery.

Budget Drama Continues In Washington

Last week, U.S. lawmakers passed on a one-week spending bill to provide a bit more time for posturing over the federal budget and the borrowing limits. That means another week of headlines about the possibility of a government shutdown.

It is possible a budget agreement and a bill allowing another trillion or two in federal borrowing won’t be passed in time. We may once again see non-essential agencies furloughed as politicians manufacture a “crisis” to use as leverage in negotiations.

Despite whatever drama is ginned up, the outcome is all but certain. They will agree to spend far more than revenues and adjust the limits on borrowing upward to fill that gap.

The composition of this Congress is largely the same as during recent budget battles but for a relatively few newcomers. This gaggle of free-spending and borrowing compromisers will, with virtual certainty, do just what they and others like them have done in each of the 74 battles since 1962.

The phony political drama may have short-term effects on the markets. More importantly, these events do contribute to an erosion of confidence in the federal government. That effect will be far more interesting for metals investors over time.

Bubbly Stock Markets a Potential Catalyst for Metals in the Months Ahead

Economists drastically lowered their estimates of first-quarter GDP growth in recent weeks, but it turned out they should have been even more pessimistic.

Last week, growth came in at just 0.7% – just a bit over half of what had been projected. It was another red flag for the economy that got buried under the persistent hopes and dreams which surround President Trump’s agenda.

Bull Market Bubble

U.S. stock markets assume Trump will succeed when it comes to tax cuts. Prices seem to be reflecting the best-case scenario. This puts stock markets in a precarious spot.

The passage of meaningful tax cuts is perhaps even less certain than the failed Republican effort to reform Obamacare.

Should the effort to cut taxes also flounder in Congress, investors may decide to stop ignoring the data showing weakening economic performance.

Any disappointment could have a big impact, and it looks more and more to us like stock investors expect way too much. That is why a significant sell-off in stocks tops our list of potential catalysts in the metals markets in the months ahead. If stock investors decide to run for the exits, many of them will be buyers of gold and silver.

Clint Siegner

About the Author:

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.