Steady as She Goes
Editorial Comment by Martyn Whitehead, LBMA Vice Chairman

Looking back at the dramatic                                               This raises the question   the leading players in the London bullion
developments affecting all                                                 of why gold has been       market are amongst the strongest of financial
                                                                           able to demonstrate        institutions. Given the emphasis on trading
markets in 2008, there were a                                              such relative stability.   with sovereign institutions in the gold market,
number of cases where trading                                              There are two aspects to   they have to be. In years past, some
                                                                           answering this question.   customers developed a taste for more exotic
almost completely broke down
                                                                           Firstly, concerning the    derivatives but more recently, the favoured
in the face of uncertainty about                                           market’s customers, the    products in the gold market have essentially
the value of the assets                                                    widespread perception      been rather simple in nature – spot, forwards
                                                                           of gold’s renewed safe     and more or less vanilla options – but these
underlying these markets.                                                  haven status has meant     have still allowed traders to provide customers
Whilst the most obvious                                                    that private investors     with the flexibility which they need. In the
example was the sub-prime                                                  have continued to buy      London market, the combination of a tried
                                                   or hold gold, central banks have either            and tested clearing and vaulting system and
mortgage market, the same could be                 maintained their positions or at least sold less   the transparent and trusted fixes together
said for the CDS market and even                   than in previous years while mining companies      provide the market’s customers with a feeling
LIBOR looked very shaky at one                     have not been tempted to engage in large-scale     of confidence about the underlying asset. One
                                                   forward selling. No one can expect that gold       relatively new product, the ETF, has certainly
point. Precious metals have also seen              demand, for instance in electronic products or     contributed to broadening the interest in gold
wild fluctuations, especially in the               jewellery, will remain unaffected by the           as an investment and this too has clearly
                                                   current recessionary tendencies in most of the     helped to maintain levels of trading activity.
PGMs and silver.
                                                   world’s economies. But the investment nature       The strength of the London market has been
It is notable that by comparison, the gold         of much of the gold sold in the form of            not only that customers have been able to put
market has been a beacon of steadiness though      jewellery will undoubtedly mean that the           on positions but that they have been able to
even here, volatility was the order of the day.    impact of recession is somewhat muted.             exit from them. Taking a somewhat wider
Thus, as measured by the average change in             The second aspect concerns the way in          view of London, its role in financing trade and
the daily price, this was double the level seen    which the professional wholesale market has        mining activity continues to be a very
in the previous two years. Somewhat                reacted to the credit crunch and to the            important adjunct to the trading activity
surprisingly, however, the overall trading range   changing needs of its customers. It is fair to     which takes place here. With a supportive and
at around 34% of the year average price was        say that all market participants have been         effective regulatory system, it is hard to see
little changed from what was seen in 2006 and      stress-tested (in a few cases to destruction) by   how London’s role could be replaced.
2007. Relative to other metals, gold’s             the events of the last year. In these                   Just as gold survived the 1930s depression,
rollercoaster ride has been almost                 circumstances, mitigating credit risk and          it is showing every capability of being a safe
comfortable.                                       maximising the efficient use of capital have       haven for investors during the difficult period
                                                   become urgent topics. Nevertheless, many of        which lies ahead in 2009. n

Forecast Winners 2008
Prizes Donated by PAMP SA
by Ruth Crowell, LBMA Executive Coordinator

Congratulations go to all three winners,       did not break any records, the 2008
Frederic Panizzutti, Tom Kendall and Bob       average came in at $14.99, and Bob
Takai who have taken home a one ounce          Takai, Sumitomo Corporation, won his
gold bar for each metal won and in Bob         first prize with a predicted average of
Takai’s case, two bars! Also our thanks to     $15.00. Tom Kendall, Mitsubishi
PAMP SA, Switzerland, for their                Corporation won the prize for platinum
generous donation of the prizes and to all     with a prediction of $1,575 just $1
who took part in the survey.                   below the outturn for the year of
    Despite a year of volatile trading,        $1,576. For palladium, Bob Takai,              Tom Kendall,
contributors to the 2008 Forecast had an       landed his second prize, with a forecast       Mitsubishi Corporation,
                                                                                              receives his one ounce
excellent year in terms of the accuracy of     of $350, just $2 below the outturn.
                                                                                              PAMP gold bar from
their predictions. In a record year for        The 2009 Forecast is included with this        Stewart Murray,
gold, Frederic Panizzutti, MKS                 issue of the Alchemist. If you are             LBMA Chief Executive
Finance SA won the gold prize with an          interested in contributing next year,
exact forecast of $872. Although silver        please email n

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