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The end of the LBMA is nighBy Alasdair Macleod, May 13, 2021, May 13, 2021
Basel 3 is on course toregulate the LBMA out of existence.And with it will go all the associated arbitrage business and position-taking onComex, becausemost bullion bank trading desks will cease to exist.The only supply to buy-side speculators of gold and silver contracts will be producer hedging.
In recent months there has been some limited commentary concerning the introduction of Basel 3 regulations and theimplications for precious metals trading.These new regulations are scheduled to be introduced for European banks atthe end of June— only seven weeks’ time — and in the UK from 1 January next, affecting all LBMA member banks…
Conclusion
Changes proposed in Basel 3 mark the end of an era for derivative trading, when almost all gold and silver trading has been in unallocated form. The consequences for precious metals markets and prices should not be ignored or underestimated. The implications are understood by the LBMA, and their response to the UK regulator reflects their helplessness in the face of these changes.
The remaining pool of available physical gold is relatively small when central bank, ETF and privately owned bars are allowed for in vaulting totals. True liquidity is not the headline 9,461 tonnes in London vaults, trumpeted by the LBMA, but is minimal —probably just a few hundred tonnes.It is from this small pool that daily imbalances in unallocated settlements which arise from delivery demands are satisfied…
There is never a good time to introduce such radical changes into long-established market practices. But with issuers of fiat currencies debasing them at an accelerating rate, bullion banks face considerable difficulties unwinding their unallocated positions at a time when public demand for physical bullion is increasingly responding to fiat money inflation, spinning out of control.
(long'ish: https://www.goldmoney.com/research/goldmoney-insights/the-end-of-the-lbma-is-nigh)