The silver fix may have its days numbered

The daily price setting process for global silver prices run by GME Group and Thomson Reuters in London risks losing credibility among investors after the benchmark was set beyond levels traded on the market last week.

The London Bullion Market Association silver price, which in 2014 moved to an electronic platform after 117 years of being set between banks, was set at $13.58 an ounce Thursday, or 3.5% less than the intraday low on the Comex in New York.

The situation repeated itself again Friday, with the LBMA price fixed at $14.08, or roughly 1% under the level the spot metal was then trading, Bloomberg reports.

Price discrepancies are seen as a sign that banks are becoming unwilling to adjust orders due to compliance fears.

Analysts see the price discrepancies as a sign that banks are becoming unwilling to adjust orders due to compliance fears.

“Somebody needs to say it … so I will. The LBMA silver price (aka the silver fix) is not fit for purpose,” writes Sharps Pixley’s columnist Ross Norman:

The real problem as we see it is that banks are increasingly unwilling or unable to place corresponding orders where they perceive a mis-pricing because of fears of being accused of abusing a situation and facing the wrath of the regulator or their compliance departments. In short – they have become entirely emasculated. The changes to the fix bring to mind the expression “the operation was a great success but unfortunately the patient died”.

At least 10 times in the last six months, the silver benchmark has settled outside the same day’s spot trading range.

The “fix” — the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts — is the current global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.

The price is set every day by five participants – HSBC, JPMorgan Chase Bank, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by the Chicago Mercantile Exchange (CME) and Thomson Reuters. Both won the battle to provide the methodology and price platform for the daily process in 2014.