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LONDON, Aug 9 The London Metal Exchange (LME) said on Tuesday it is planning to launch spot and futures contracts for gold and silver in the first half of 2017, adding to its list of products which includes copper and aluminium.
The 139-year old exchange is working in collaboration with the World Gold Council, an industry body backed by gold mining companies such as Barrick Gold and Goldcorp, and is supported by five banks and proprietary trader OSTC, which have committed to provide liquidity.
"The initiative has been driven by the need for greater market transparency, to support and aid ongoing regulatory change, provide additional robustness to the precious metals market, broaden market access," the exchange and its partners said in a statement.
Financial market transparency has been a major focus for regulators after evidence of price manipulation in lending rates between banks in the Libor scandal in 2012.
As regulators continue to review commodity markets, the bullion industry is braced for further changes that could ultimately include a mandatory central clearing or more expensive bilateral trading.
Banks and bullion operators have looked for ways to preserve London's role as a major global trading centre, while increasing transparency of a market which can trace its roots back to the 17th century.
The London Bullion Market Association (LBMA), another industry body whose members are mostly banks, refiners and dealers, separately asked exchanges and technology firms in October last year to bid for services such as a gold exchange or a clearing platform.
London currently dominates the global over-the-counter gold trade with an estimated $5 trillion changing hands every year, while New York's Comex contract sets the benchmark for futures.
The LME plans physically delivered spot, futures and options contracts. The gold will be 100 ounces in size (worth around $133,600 at current prices) and silver 5,000 ounces. All contracts will be cleared through LME Clear, the exchange's clearing house, which has an annual traded notional value of $12 trillion.
The World Gold Council CEO Aram Shishmanian said that they had initially engaged with around 30 firms, but only Goldman Sachs, ICBC Standard Bank, Morgan Stanley , Natixis and Societe Generale signed up to support the contracts from the launch day.
After the transformation of precious metals benchmarks in 2014, led by a regulatory drive to make them more robust to attempts of manipulation, banks have become more cautious.
Several of them have run into trouble with regulators over misdemeanours in their precious metals trading business.
The benchmarks are widely used by producers, consumers and investors to trade and value the metal. Gold and silver are among the eight major market benchmarks that are regulated by Britain's watchdog Financial Conduct Authority (FCA).
The LME, which runs the platinum and palladium price benchmarks, will look at extending spot and futures contracts to these two metals, the LME's chief executive Garry Jones told Reuters.
The world's oldest and largest market for industrial metals, owned by Hong Kong Exchanges and Clearing had suspended a clearing service for OTC gold and silver trades in 2014, which was run in conjunction with London clearing house LCH.Clearnet, when market-making members including UBS and JPMorgan stopped providing data to participate in price-setting mechanisms.
The exchange also operated a 10,000 ounce silver contract in the 1970s, which was suspended the following decade. (Reporting by Clara Denina, editing by David Evans)
June 2016 wholesale inventories were $590.9 billion, up 0.3 percent from the revised May level and up 0.2 percent from June 2015. Sales were $444.6 billion, up 1.9 percent from the revised May level but down 0.4 percent from June 2015.
The campaign still has three ugly months to go, but the odds — 83 percent odds, according to the New York Times’s model — are that it will end with the election of a sane, sensible president. So what should she do to boost America’s economy, which is doing better than most of the world but is still falling far short of where it should be?
There are, of course, many ways our economic policy could be improved. But the most important thing we need is sharply increased public investment in everything from energy to transportation to wastewater treatment.
How should we pay for this investment? We shouldn’t — not now, or any time soon. Right now there is an overwhelming case for more government borrowing.
Let me walk through this case, then address some of the usual objections.
First, we have obvious, pressing needs for public investment in many areas. In Washington, the aging Metro is in such bad shape that whole lines may have to be shut down for maintenance. In Florida, green slime infests beaches, in large part because failure to upgrade an 80-year-old dike or to purchase more land as a runoff area is forcing the Army Corps of Engineers to release polluted water from Lake Okeechobee. There are similar stories all across America.
So investing more in infrastructure would clearly make us richer. Meanwhile, the federal government can borrow at incredibly low interest rates: 10-year, inflation-protected bonds yielded just 0.09 percent on Friday.
Put these two facts together — big needs for public investment, and very low interest rates — and it suggests not just that we should be borrowing to invest, but that this investment might well pay for itself even in purely fiscal terms. How so? Spending more now would mean a bigger economy later, which would mean more tax revenue. This additional revenue would probably be larger than any rise in future interest payments.
And this analysis doesn’t even take into account the potential role of public investment in job creation: Despite a low headline unemployment rate, the U.S. economy is still probably short of full employment, and an investment agenda would also offer valuable insurance against possible future downturns.
So why aren’t we borrowing and investing? Here are some of the usual objections, and why they’re wrong.
We can’t borrow because we already have too much debt. People who say this usually like to cite big numbers — “Our debt is 19 trillion dollars,” they intone in their best Dr. Evil voice. But everything about the U.S. economy is huge, and what matters is the comparison between the cost of servicing our debt and our ability to pay. And federal interest payments are only 1.3 percent of G.D.P., low by historical standards.
Borrowing costs may be low now, but they might rise. Yes, maybe. But we’re talking about long-term borrowing that locks in today’s low rates. If 10 years isn’t long enough for you, how about 30-year, inflation-protected bonds? They’re only yielding 0.64 percent.
The government can’t do anything right. Solyndra! Solyndra! Benghazi! A large part of our political class is committed to the proposition that any and all government efforts to improve our lives are doomed to failure — a proposition that turns into a self-fulfilling prophecy when these people are actually in office. But to hold that view you have to turn your back on our own history: American greatness was in large part created by government investment or private investment shaped by public support, from the Erie Canal, to the transcontinental railroads, to the Interstate Highway System.
As for the constant harping on individual failures, all large organizations, private businesses very much included, engage in some projects that don’t work out. Yes, some renewable-energy investments went bad — but overall, the Obama administration’s promotion of solar and wind has been a huge success, with a rough quadrupling of production since 2008. Green energy should be seen as an inspiration, not a cautionary tale.
There is, in short, an overwhelming policy case for federal borrowing to pay for public investment. But will the next president be able to act on this case?
The good news is that elite discourse seems, finally, to be moving in the right direction. Five years ago the Beltway crowd was fixated on debt and deficits as the great evils. Today, not so much.
The bad news is that even if Hillary Clinton wins, she may well face the same kind of scorched-earth Republican opposition President Obama faced from day one. So it matters not just who wins in November, but by how much. Will there be a strong enough Democratic wave to give Mrs. Clinton the ability to act?
But while the politics remain uncertain, it’s clear what we should be doing. It’s time for the federal government to borrow and invest.
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