RUSSIA TO CREATE RIVAL METALS EXCHANGE

28 October 2024

The LBMA sets the spot price and the COMEX exchange in new york sets future prices and the two work together to determine the  price of gold. But Russia is done with this.

I remember 10 years ago there was a huge scandal because Barclays and a handful of other banks who were charged with setting the price in London were actually colluding. And as a result of that, the whole thing moved on to some electronic auction system, and so it - the method for establishing the price of gold - is more open and transparent.

So although people are still suspicious that the method fiddles with supply and demand in some way, avoiding corrupt practises isn't the real objective of the new exchange that Russia is intending to build over the next three years.

Instead, anew rival metals exchange is part of the BRICS plan to de-dollarise, and to escape sanctions and Russia can expect plenty of pressure from the americans.

Putin recently clearly rejected a common currency for BRICS. But I recall a couple of years ago, Jim Rickards explained how a half-common currency could be engineered if all the different currencies each had a fixed exchange rate of its own to the price of gold, which would vary. But what I couldn't really believe was that they would fix to a gold price established in london and new york. So evidently, this new exchange will be managed by the BRICS themselves and not by the West.

There's a few things to think about.

One is of course, what effect will the competition between the two metals exchanges have on the price of gold, given that there will be competition and volatility and arbitrage?

Another point is that this will make it a lot easiet for BRICS central banks to amass gold, with the idea that this will back their currencies. So a welcome change from the fiat currencies of the West, which abandoned the gold standard back in 1971 under Nixon, permitting massive increases in fiscal spending and inflation as a consequence.

And thirdly, metals exchanges don't just trade gold, they trade other metals, precious metals, and so Putin intends to diversify bank assets into silver and platinum as well. 

So final point, it seems like it might be difficult to predict the effect of this new exchange on the price of gold. On the one hand, banks are buying gold to support their currencies and yet, on the other hand, diversifying into other precious metals might reduce demand for gold....watch this space!