Last Ever London PM Gold Fix Set at $1166

LONDON’S final PM Gold Fix was set today at $1166 per ounce, ending a process running formally twice each day since 1919 with a 15-year break during and after WWII.
The market’s new benchmark, the LBMA Gold Price, will begin Friday morning, repeating the core process – and providing continuation for commercial contracts and valuations around the world – but using an online platform with fully auditable order entries and strict regulatory oversight by independent administrator, ICE Benchmarks Administration (IBA).
Owned by the London Bullion Market Association (LBMA), the new price point will be freely distributed until the third quarter of 2015, when IBA expects to publish its fee schedule.
The last PM Gold Fix saw 2 sellers and 2 buyers amongst the four member banks, with their client and house orders netting out to supply of 145 bars against demand for 110 bars at that price of $1166 per ounce.
The imbalance came within the Gold Fix‘s tolerance of 50 large bars (20,000 ounces), with the difference met between the 4 members, who undertook to deal any size at that single price.
Friday’s new process – again run at 10.30 and 3pm London time – will also seek the one, single price which clears the most business across the wholesale gold bullion market at that moment. Like the 100-year old Fix, it will effectively pool the market’s buy and sell orders, trying prices higher or lower – and accepting new orders in response in rounds lasting 45 seconds each – until supply and demand are balanced.
As before, the price is set (formerly “fixed”) when any imbalance is smaller than 20,000 ounces. Again, the new LBMA Gold Price also requires the major bullion dealers involved (formerly the Fixing members, now “participants”) to meet any residual demand or supply which results. Instead of a minimum order size of one 400-ounce Good Delivery bar however, the new minimum size for orders – entered directly to the WebICE app by participant bank sales desks separately from their traders, with the traders now unable to see client flows – will be just 1 ounce.
The web application replaces the old Gold Fix’s twice-daily telephone call (a face-to-face meeting at the chairing bank’s offices from 1919 to 2004). The opening price suggested by the WebICE platform to participants and their clients will be based on prevailing spot market and global exchange prices, and decided by a specialist team at IBA.
An independent human chair – rather than an algorithm – will then suggest higher or lower prices to find the balancing price as needed. Rotated from amongst a pool of external experts, the chair will attend IBA’s offices in person.
Six bullion dealers will participate in Friday’s auctions, ICE said, confirming the involvement of the London Gold Fixing Limited’s current four members (HSBC, Scotia Mocatta, Barclays and Societe Generale) plus two more as yet un-named – but neither are Chinese, said Finbarr Hutcheson, president of IBA, explaining thenew price’s methodology and answering journalist questions this morning in London.
“A number are very interested, but aren’t yet in a position to start,” Hutcheson said, adding that a blog he’d read claiming Chinese banks were somehow being excluded was “totally wrong.”
CEO of the LBMA Ruth Crowell stressed the amount of work needed from the existing Fixing member banks to prepare for Friday’s new process, with strong commitment at the highest levels ensuring “lots of internal sign-offs.”
It’s a significant step, she said, for a CEO – answerable to shareholders – to back joining a new benchmark “in the face of negative headlines” about the current process and with benchmark abuse “subject to billions in fines.”
From 1 April, a government Order amending the Financial Services & Markets Act (2000) will make the new LBMA Gold Price – along with the LBMA Silver Price and five other key data points for interest rates, foreign exchange and crude oil – a formally regulated benchmark under UK law, with individuals facing criminal sanctions for attempted wrong-doing.
Having made interbank interest rates subject to criminal law in 2013, UK regulator the Financial Conduct Authority (FCA) was “very Libor-centric” in how it approached the new gold benchmarking requirements, said Hutcheson.
“There’s no rule book for these new benchmarks,” he explained, but clarity on what the law and regulators will require is now “considerably better than in January and February,” when the issue was still under consultation by the UK government.
“Clearly,” Hutcheson said, the guidance now given is “satisfactory to the six firms starting Friday,” and IBA has worked closely with the FCA in developing the new LBMA Gold Price methodology and procedure. It is also “IOSCO ready”, because the auditable trail tracks order-entry down to client-level – a key requirement of the International Organization of Securities Commissions’ benchmark principles.
IBA last November beat four other proposals to provide a Gold Fix replacement, including from the CME/Thomson Reuters team already administering the LBMA Silver Price since August, and from the Hong Kong-owned London Metals Exchange (LME), which went on to become administrator for LBMA Platinum and Palladium benchmarks in December.
The new Gold Price’s Oversight Committee includes two representatives from the mining industry (AngloGold Ashanti’s group treasurer Rob Hayes, and the not-for-profit Denver Gold Group’s executive director Tim Wood), plus metals refiner Johnson Matthey’s general manager Grant Angwin (also current chair of the LBMA), bullion-bank director Simon Weeks from Scotia Mocatta, compliance specialist Emma Vick from IBA, and LBMA CEO Crowell.
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Gold Mining Growth ‘Ends in 2015

GOLD MINING output is set to stall or even decline in 2015 from last year’s new record high, according to the industry’s leading analysts.
Total output rose for the sixth year running in 2014, says consultancy and data providers Thomson Reuters GFMS, adding some 2% to reach a new record of 3,133 tonnes.
But fresh cuts to new exploration – put at 31% in 2014, the second year of heavy cuts according to consultancy SNL Metals & Mining – mean “global production growth will [now] stall,” GFMS says in this week’s new Gold Survey 2015, “as the project pipeline delivers less incremental growth and a handful of depleted mines close.”
London-based consultancy Metals Focus said in its 2015 yearbook last week that gold mining output will in fact “decline marginally” in 2015 “as the number of new projects entering production slows.”
What’s more, with gold prices too low to support some higher-cost projects, “some cost-related closures seem likely.”
Direct gold mining costs per ounce fell globally by some 4% to $750 according to both Metals Focus and Thomson Reuters GFMS. But their methodologies differ sharply over what’s known as the “all in sustaining” cost – a wider measure accounting for local development and infrastructure, as well as exploration for new ounces in the ground to replace mined metal on the corporate balance sheet – with the Metals Focus seeing an 8% drop to $1065 while GFMS sees a mere 3% drop to $1208.
Wholesale gold bullion prices averaged $1266 per ounce in 2014, and “in terms of both volumes and profitability,” says Thomson Reuters GFMS, “the mining industry remains in a precarious position.”
Outside China – now the world’s No.1 mining nation every year since 2007 – last year’s output growth came mostly from large, recently commissioned either “ramping up production” or seeing “significant expansions” the consultancy explains. Losses, in contrast, came from more  mature projects – notably major US sites such as Cortez, owned by the world’s largest gold miner Barrick (NYSE:ABX), and the Nevada Complex, run by world No.2  Newmont (NYSE:NEM).
So-called “informal mining” also shrank says Metals Focus, with small-scale, hand-worked and mostly illegal output estimated to have fallen 5% following 2013’s sharp drop in world prices and with “a crackdown on informal mining practices in some countries.”
Amongst the world’s largest mine companies, says a separate report from London bullion market maker Barclays Bank, capital expenditure last year fell to half the level of 2012.
“It has been projects and expansions conceived during the gold bull market,” says Metals Focus, “that have continued to drive production higher in recent years.”
With capex now slashed, however, the rate of new mines entering production has “slowed markedly, and the number of projects currently under construction has dwindled.”
Acquisitions via the stock market, in contrast, fell only 3% last year from 2013 according to SNL, with the average spend on companies or sites already in production falling nearly 30% from $440 million to $318m.


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Optimism on Gold?!

The only reason for cheer, says this mining analyst, is the gloom…
CHRISTOS DOULIS, a mining analyst with PI Financial, has spent 20 years in a wide variety of roles within the mining industry.
Previously a mining research analyst at Stonecap Securities, and a partner at mining advisory Gryphon Partners Canada before that. Doulis began his career as a research associate in 1994 at Scotia Capital. Now covering a variety of gold and silver companies in the small- to mid-cap market – and with a focus on producers and late-stage development companies – Doulis here tells The Gold Report why the bear market in precious metals is well into its fourth year and could persist into 2016.
The Gold Report: In September 2014, you told us that investors needed to own bulletproof, low-cost producers that can survive lower gold prices. What is your investment thesis for this point in the bear market?
Christos Doulis: Unfortunately, not much has changed. We certainly do not appear to be in a bull market for gold. All of us would like to see higher prices. They may come at some point in the future but no one knows when that will be. So in the short and medium term, I would continue to recommend owning the lower-cost producers in order to protect oneself from the chances of insolvency.
TGR: What is your technical analysis of the recent performance of gold telling you about what we’re headed for?
Christos Doulis: I am still negative. When I look at the trend over the last year or so, there’s been quite a bit of volatility, but in general, the highs keep getting lower, and the lows are getting a bit lower as well. For instance, in January 2014 we had a rally that went close to $1400 per ounce before it petered out. Then we had another rally in January of this year when gold got closer to $1300, not to that $1400 level, before it started to give back the gain.
If you draw a channel on the gold price, it certainly looks as if we have not reversed course yet. The highs keep getting a bit lower on the volatility, and the lows have been lower. Then again, gold popped $20 per ounce in early April. If gold could sustain a rally to $1250, I would start feeling a little more enthusiastic about the space.
TGR: What is your prognosis for this bear market?
Christos Doulis: My personal view is that I’m hoping for higher gold prices in the second half of 2015, and hope to see a return to an upward trend in the metal’s price. My view is that we are still in a long-term bull market for gold but that after a 10-year bull run, we needed some pullback. This pullback has been particularly vicious, but what else is one to expect after gold went from $300 to $1800 per ounce in a decade?
TGR: What price would gold have to sustain before you were willing to declare the bear dead?
Christos Doulis: If I saw gold trading north of $1350 per ounce, I would start to think that even higher prices might be coming and the bear market was dead.
TGR: What are your price decks for gold and silver?
Christos Doulis: We use $1250 per ounce gold and $19 per ounce silver.
TGR: You have seen a few cycles in your 20 years in the space. What are two or three things you have learned about this bear market that were perhaps not evident in others?
Christos Doulis: The one thing I’ve taken away from this bear market is the longer the run-up, the more painful the correction. I thought that last year would probably be the worst. When gold peaked in 2011, I was not surprised to see a correction. I certainly thought that $1300 per ounce gold was in the cards, but I did not see $1150 per ounce gold as likely. I have definitely concluded that the market can be much more pessimistic than you can, and it certainly isn’t going to turn just because you want it to. As I said, I was thinking 2014 would be the year when we would see a reversal in gold prices. Now, I’m hoping for the second half of 2015.
TGR: Miners have reduced their costs in order to boost margins at $1200 per ounce gold, but some, not all, are doing that by mining the higher-grade portions of their deposits. Were miners high grading to the same degree in previous downturns?
Christos Doulis: My take on it is some miners are definitely high grading, but good miners aren’t. They understand that if you high grade a mine, you not only reduce its longevity by removing the high grade, but in effect you reduce it even more because all that you have left is low grade, which might never be economic. Imagine you have a deposit that has different zones grading various grades. If you blend them all, you can deliver, call it, 8 grams per ton to the mill, but if you high grade it, you can deliver 12 grams per ton. The problem is that means you deliver the high grade for a couple of years, but then you’re stuck with delivering 6 grams per ton or 4 grams per ton material to the mill. It could mean that entire portion of the deposit is no longer economic. Good CEOs are loath to high grade and, instead, they focus on cost reduction. That is the bigger trend.
TGR: Do you learn more about a management team in a downturn?
Christos Doulis: Absolutely. When gold is trending upward, it covers a lot of mistakes, and the market is more forgiving. When gold is trending downward, we see who the quality executives are because they’re the ones who are able to reduce costs without jeopardizing the longevity of their operations. It goes back to the concept of high grading. Good CEOs in the last couple of years have been the ones who have said, “We’re going to reduce costs,” and have actually done so.
In bear trends like this, if you promise X and you deliver half of X, you get penalized. This is a market where sins are not quickly forgiven. Therefore, the people who don’t sin, vis-à-vis the better CEOs who meet their prognostications, are the ones that the market rewards. Also, as an analyst it allows you to figure out what groups really know their asset(s) and understand how to drive the business from a cost perspective.
TGR: Could you give our investors a reason for optimism in this space?
Christos Doulis: One reason for optimism is the abounding pessimism in the marketplace. An old adage is “buy when others are selling.” Nothing has changed in the grand perspective of post-financial crisis money creation. The only thing that has not happened is visible inflation, and that’s why we’ve seen interest in this space decline. There has never been an economic recovery that has been solely created by monetary expansion that doesn’t come with inflation.
While everyone is worried and nattering about deflation, if we ever see a real economic pickup, which we haven’t yet, I think that precious metals will start moving up again. And I want to remind your audience that gold had a run from $300 per ounce to $1800 per ounce before it came back to $1200 per ounce. Even at $1200 per ounce, that’s four times where it was at the beginning of the 21st century. One of the biggest cases for optimism is that nobody is telling you to buy gold stocks today. When everybody and their uncle are telling you that this is the asset you have to own, whether it’s gold, internet stocks or whatever, it’s likely that you already missed the market.
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